VAT (Value Added Tax) represents a tax that relates to all that is good and service that the customer consumes. Products, services, services, among others, your company is subject to value added tax when it performs a service or sells a product. And many individuals manage invoices without having precise information on VAT. To help you understand VAT, how it works, and the various VAT rates that exist, see the details in this article.

What is the definition of VAT?

VAT (Value Added Tax), also called sales tax, is an indirect tax on the consumption of goods or services. The invoicing of VAT is carried out by the suppliers to their customers. In other words, VAT is not directly subject to businesses. Rather, these companies act as a sort of relay between customers and consumers. Also, VAT is the difference between the cost excluding tax and the cost including all taxes. You should know that VAT only applies to everything that is transaction carried out in the same territory, that of France for example. There are therefore two types of VAT: collected VAT and deductible VAT.

What about how VAT works?

The payment of VAT is based on a principle consisting of three important stages. First of all, consumers pay VAT on goods and services to their suppliers. Subsequently, these suppliers collect VAT through the sale of products or services. In the last step, the suppliers take care of the payment of this tax to the State. Also, the supplier must pay an amount including all taxes, each time he sells a good or a service. Thus, the value-added tax intended for the State constitutes the difference between the purchase VAT and that invoiced to customers. Make use of the tax refund estimate there.

What are the various VAT rates?

It is important to know that there is not the same VAT at the level of each good or service. Indeed, there are 4 types of VAT rate: the standard rate which is 20%, the intermediate rate at 10%, the reduced rate at 5.5% and the special rate at 2.1%. The special rate concerns everything that is sale of live animals to delicatessens or butchers, drugs not reimbursed by the TV license and social security. The reduced rate relates to food products, services dedicated to disabled people, construction projects that invest in renewable energy and books. The intermediate rate covers passenger transport, catering and agricultural products. To finish, the standard rate concerns all the other products which are not taken into account by the other rates mentioned above.

The impact of VAT on your invoices and quotes

Collecting VAT on your sales and services requires you to inform your customers and prospects. Certain information therefore becomes mandatory on your invoices and quotes:

  • Your intra-community VAT registration number
  • The price excluding tax (HT) of the service or the goods sold
  • The price inclusive of all taxes (TTC) of the service or the goods sold