How to Calculate for VAT When Traveling Abroad

Have you ever traveled to a new country, and the moment you arrive in your destination airport, you see signs saying “VAT refund” everywhere?

When you travel to a foreign country, it is essential to know that most goods and services are subject to VAT, which can range from 5% to 27%, depending on the country. For instance, if you buy a souvenir from a street vendor in Paris, the vendor’s listed price will include VAT, which you, as a consumer, are expected to pay. This can add up, especially if you are making multiple purchases during your trip.

As a traveler, understanding value-added tax (VAT) can help you make informed purchases and save money by claiming refunds where applicable. 

What is VAT?

VAT is a tax that is added to the price of goods and services at every stage of production and distribution. This means that locals also pay VAT, which in the U.S., would be similar to a sales tax. VAT is a form of indirect taxation, meaning that it is paid by the end consumer and not directly by the seller or service provider. The VAT rate varies by country and can range from 5% to 27%, which is quite the range.

VAT systems often include a standard rate and a reduced rate. The standard rate is the default VAT rate applying to most goods and services, while the reduced rate is a lower rate that’s typically only applicable to goods and services that are considered essentials or benefiting certain industries (such as water, food, clothing, hotels, transportation, etc.) The specific rates for standard and reduced VAT can vary from country to country.

Here are some examples of VAT rates in different countries: 

• Ireland: Standard rate – 23%; Reduced rate – 13.5%; Second reduced rate – 9%
• United Kingdom: Standard rate – 20%; Reduced rate – 5%; Zero rate – 0%
• Germany: Standard rate – 19%; Reduced rate – 7%
• France: Standard rate – 20%; Reduced rate – 10%; Super-reduced rate – 5.5%
• Italy: Standard rate – 22%; Reduced rate – 10%; Reduced rate – 4%
• Spain: Standard rate – 21%; Reduced rate – 10%; Reduced rate – 4%
• United States: The United States does not have a national VAT system. Instead, it has sales tax that varies from state to state and can range from 0% to over 10%, depending on the location and the goods or services being sold.

These rates can change, so be sure to check before your trip. Calculating VAT can be complex, especially if you are not familiar with the applicable VAT rates and rules. However, there are some simple mathematical tricks you can use to calculate VAT without a calculator, which can come in handy during your travels. More on that in a bit!

How to Calculate VAT

Calculating VAT can be a complex process, especially if you are not familiar with the applicable VAT rates and rules. However, there are some simple mathematical tricks you can use to calculate VAT easily, as well as the price of the item before VAT was added:

#1: Calculate VAT on Single Items

Calculating VAT for single items can be easily done using addition or subtraction, depending on whether you have the net price or gross price. These methods allow you to determine the price including VAT or find the original price before VAT was added.

To calculate the gross price after VAT has been added:

Let’s say you’re shopping for a pair of shoes, but only the net price of the shoes has been added, and the VAT will be added on at the register. The shoes cost €100 in a country with a VAT rate of 23%.  How much will you actually end up paying? 

Use this formula:

Total price including VAT = net price + (net price x VAT rate as a decimal)

So…

Total price including VAT = €100 + (€100 x 0.23) = €123

This means that you’ll end up paying €123 for the shoes. 

To calculate the net price of the item before VAT has been added:

Now, let’s say that the store you’re shopping for a pair of shoes, but the VAT has already been added. The shoes cost €123 total. Great – no surprises! But, you still want to know how much those shoes cost before the VAT, to ensure you’re getting a good price. only the net price of the shoes has been added, and the VAT will be added on at the register. The shoes cost €100 in a country with a VAT rate of 23%.  How much will you actually end up paying? 

Use this formula:

Net price = gross price / (1 + VAT rate as a decimal)

So…

Net price = €123 / 1.23 = €100

This means that the shoes cost €100 before the VAT was added on!

Tip #2: Calculate VAT on Multiple Items

What happens if you’re buying a lot at once, or you want to calculate what you paid before and after VAT? Whether it’s to just know what you paid net for items, or how much VAT you’re paying, this is helpful to know in general for your finances, your travel budget, and/or to get your VAT refund back. Here’s how to calculate VAT/net price on multiple items:

To calculate the VAT you paid on all your items:

Total VAT = (Net Price 1 x VAT Rate 1) + (Net Price 2 x VAT Rate 2) + … + (Net Price n x VAT Rate n)

Where “n” is the number of items on the list.

For example, let’s say you have a list of three items with different net prices and VAT rates:

• Item 1: Net price of €50, VAT rate of 13.5%
• Item 2: Net price of €75, VAT rate of 23%
• Item 3: Net price of €100, VAT rate of 9%

Using the formula above, you can calculate the total VAT as follows:

Total VAT = (€50 x 0.135) + (€75 x 0.23) + (€100 x 0.09) = €18.75 + €17.25 + €9 = €45

Therefore, the total VAT on the three items would be €45.

To calculate the net price of your items if VAT had already been added:

Let’s say VAT had been added on your purchases, and you want to know what the items cost before the VAT was added on;

Net Price 1 = Gross price including VAT 1 / (1 + VAT Rate 1 as a decimal)

Net Price 2 = Gross price including VAT 2 / (1 + VAT Rate 2 as a decimal)

…

Net Price n = Gross price including VAT n / (1 + VAT Rate n as a decimal)

For example, let’s consider a list of three items with their gross prices including VAT and corresponding VAT rates, keeping in mind that you would have such dramatically different rates if you’re using standard and reduced rate, and/or if you were shopping in different countries during your trip:

• Item 1: Gross price including VAT €56.75, VAT rate of 13.5%
• Item 2: Gross price including VAT €91.75, VAT rate of 23%
• Item 3: Gross price including VAT €109, VAT rate of 9%

Using the formula above, you can calculate the net prices before VAT as follows:

Net Price 1 = €56.75 / (1 + 0.135) ≈ €50

Net Price 2 = €91.75 / (1 + 0.23) ≈ €75

Net Price 3 = €109 / (1 + 0.09) ≈ €100

Therefore, the net prices before VAT for the three items would be approximately €50, €75, and €100, Add these together, and you have €225 total you spent, which means if you subtract this from the total gross price including VAT of all the items (€257.50), you get €32.50 as the total VAT on all these items. 

Tip #3: Use a VAT Calculator

While the above-mentioned tricks and formulas are useful for calculating VAT without a calculator, they may not be practical for all situations, especially if you have multiple items with varying VAT rates. In such cases, using a VAT calculator can save you time and effort.

To use the calculator, simply access the provided link and input the necessary information. Begin by selecting whether you want to calculate the VAT on an amount, or the amount before VAT — like the formulas above. Then, enter the appropriate values such as the net price, VAT rate, or gross price, depending on the calculation you need and the information you have. 

How to Calculate a VAT Refund

Now that you know how to calculate VAT, you’re probably wondering if the VAT you paid while traveling is the same amount that you’ll get back from a refund. It’s important to understand that the VAT calculated and VAT refund are not necessarily the same amount. While the VAT calculated refers to the amount of Value Added Tax applied to any purchase or transaction, the VAT refund refers to the reimbursement of the VAT that you have paid on eligible purchases. This means that when you qualify for a VAT refund, the VAT refund amount that’s actually eligible for a refund may be less than the VAT calculated. This is because it depends on the specific refund policies and deductions applied by the tax authorities or refund service providers.

In addition to understanding how much VAT you’re paying on an item, you’ll want to know what’s eligible for a refund and what percentage that is as well. Be sure to cross-check all of this when you go to claim.