Three Faces of VAT: Output, Input, and Import
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Value Added Tax (VAT) plays a crucial role mainly in the European Union's (EU) tax system, impacting both businesses and consumers. However, navigating the various types of VAT can be confusing. Let's delve into the three main categories: 1. Output VAT : This is the tax that a registered EU company collects on its sales of taxable goods and services to customers within the EU. This tax is typically added to the price of the product or service and shown separately on the invoice. The company then remits the collected output VAT to the relevant tax authorities at regular intervals. 2. Input VAT : This is the tax that a registered EU company pays on its purchases of goods and services . It's crucial to note that this tax is not an expense for the company, as it can be recovered through a process known as VAT reclaiming. Companies can reclaim input VAT for purchases related to their taxable supplies. This essentially helps businesses avoid paying tax on tax, creating a more...