Value Added Tax (VAT)

A value-added tax (VAT) is a consumption tax imposed on the value added to goods and services at each stage of production, distribution, and sale. The VAT amount the user pays depends on the product cost and any material costs the product was already taxed at a prior stage. 

VAT is technically collected from businesses, but ultimately paid for by consumers. Businesses collect VAT from their customers and then send it to the government.

VAT is a common tax in over 160 countries, especially within the European Union. 

However, VAT is not applied within the United States. Foreign and domestic importers are charged according to the HS tariff schedule only. Revenue that would be generated by VAT is replaced in the U.S. by the sales tax system.

Some examples of how VAT is used in other countries includes:

• Germany: Standard VAT rate is 19%. They do have reduced VAT rates for food and books.
• Japan: Standard VAT rate is 10%. They do have reduced VAT rates for food and books.

New importers, particularly ones based in the United States, need to become familiar with this if they plan on running import/export businesses out of other countries as well.  

For those looking to work with manufacturers elsewhere, this may impact the cost of the products you plan to import. 

Related articles:

Section 321 Shipments: Can You Say Tax-Free?

Taxes on Imported Goods: A Guide to Tariffs, Duties, and More