How VAT works: a €100 example
Imagine a chair sold for €100 before tax in a country with 20% VAT:
- 🪑 The retailer sells it for €120 (€100 + €20 VAT) and sends the €20 to the tax office — minus any VAT the retailer already paid its supplier.
- 🏭 The manufacturer did the same when selling to the retailer, and so on down the chain.
- 🛒 You, the consumer, simply pay €120. The price tag already includes VAT — EU law requires it.
Because each business reclaims the VAT it paid on inputs, the tax effectively lands only on the value added at each step — hence the name.
EU VAT rates at a glance
| Country | Standard rate | Reduced rates |
|---|---|---|
| 🇱🇺 Luxembourg | 17% (EU minimum) | 14%, 8%, 3% |
| 🇩🇪 Germany | 19% | 7% (food, books, transport) |
| 🇫🇷 France | 20% | 10%, 5.5%, 2.1% |
| 🇳🇱 Netherlands | 21% | 9% |
| 🇭🇺 Hungary | 27% (EU maximum) | 18%, 5% |
EU rules set a minimum standard rate of 15%, but every member state chooses its own exact rates — which is why the same product can cost noticeably different amounts across borders even before shop margins.
The reverse charge rule
Selling business-to-business across EU borders? Then the reverse charge usually applies: the seller invoices with 0% VAT, and the buyer accounts for the VAT in their own country at their local rate. It removes the need for sellers to register for VAT in every EU country they sell to — essential knowledge for freelancers and online sellers in Europe.
❓ VAT FAQs
What is VAT in simple terms?
A consumption tax added to most goods and services. Businesses collect it at each sale and pass it to the tax authority; the end consumer ultimately pays it.
What are the EU VAT rates?
Standard rates run from 17% in Luxembourg to 27% in Hungary, with reduced rates (often 5–13%) on essentials like food and books.
What is the VAT reverse charge?
For cross-border B2B sales inside the EU, the seller charges 0% VAT and the buyer declares the VAT in their own country.
Is VAT included in European prices?
Yes — EU consumer law requires displayed prices to include VAT, so the tag price is what you pay.
Related: What Is Gross vs Net Salary? · What Is Compound Interest? · Free VAT Calculator