How VAT, GST and sales tax work, and how to add or remove tax from any price

VAT, GST and sales tax are all consumption taxes charged as a percentage of a price, and the arithmetic is the same for each: multiply by (1 + rate) to add tax, divide by (1 + rate) to take it out. The traps are in the details. This guide covers what separates the three systems, how to tell a tax-inclusive price from a tax-exclusive one, the reverse calculation that most people get wrong, the standard rates in common jurisdictions, and what a tax invoice must show.

Three names, two systems

VAT (value added tax) and GST (goods and services tax) are the same mechanism under different names. Every registered business in the chain charges the tax on its sales, reclaims the tax it paid on its own purchases, and pays the difference to the tax authority. The tax is collected in stages, but the whole burden lands on the final consumer, who cannot reclaim anything. The UK and most of Europe call it VAT; Australia, New Zealand, Singapore, India and Canada call it GST; Spanish-speaking countries call it IVA; Japan calls it consumption tax. Some Canadian provinces merge the federal GST with their provincial tax into a single HST, while others charge GST plus a separate provincial sales tax on the same purchase.

US sales tax works differently. There is no federal rate. States, counties and cities set their own rates, and the tax is charged once, at the final retail sale, rather than at every stage. A business buying goods to resell normally provides a resale certificate and pays no tax on that purchase. Combined state and local rates run from 0% to about 10%, and the rate depends on where the customer takes delivery, which is why online sellers need to look up rates by address.

Tax-inclusive versus tax-exclusive prices

In VAT and GST countries, prices shown to consumers must normally include the tax. A shelf price of 120 in a UK shop is what you pay. Quotes between businesses are usually the opposite: the figure is net, with tax shown as a separate line and added at the bottom, because the buyer will reclaim it anyway. In the US, shelf prices almost always exclude sales tax, and it appears at the checkout.

Before you calculate anything, decide which kind of figure you are holding. A quote that says “plus VAT” or “excl. GST” is net; a receipt total or a consumer price is gross. Apply the wrong formula and you will be out by the full tax amount.

Adding tax to a net price

Adding tax is the easy direction. Multiply the net price by (1 + rate) to get the gross price, or by the rate alone to get the tax.

To add 10% GST to a net price of 250: 250 × 0.10 = 25 of tax, and 250 × 1.10 = 275 gross. On an invoice you would show 250 net, 25 GST and 275 total.

Removing tax from a gross price

To find the net amount inside a tax-inclusive price, divide by (1 + rate). The tax is the difference between gross and net.

To remove 20% VAT from 120: 120 ÷ 1.20 = 100 net, and 120 − 100 = 20 of tax. The tempting shortcut of taking 20% off the gross gives 120 × 0.80 = 96, which is wrong: the 20% was charged on the net figure, not the gross, so the tax is a sixth of the gross price, not a fifth. The error grows with the rate, and on an expense claim or a price comparison it is the kind of mistake that is embarrassing to explain later.

The table shows the divisor and the share of the gross price that is tax at common rates. Use it as a sanity check: at 20%, tax should be about 16.7% of whatever you paid.

Rate	Divide gross by	Tax as a share of gross
5%	1.05	4.76%
10%	1.10	9.09%
15%	1.15	13.04%
20%	1.20	16.67%
25%	1.25	20.00%

A second example with a less convenient rate: a German receipt for 500 including 19% VAT. 500 ÷ 1.19 = 420.17 net, so the VAT is 79.83. The GST / VAT calculator does both directions, and prints the formula it used beneath the result so you can reproduce it in a spreadsheet.

Standard rates as of 2026

These are the standard rates in a selection of countries as of 2026, taken from the calculator’s own preset list. Governments change rates, usually at the start of a fiscal year, and reduced rates apply to categories such as food, books and energy, so confirm the current figure on the tax authority’s website before you file or quote.

Country	Tax	Standard rate	Notes
Australia	GST	10%
New Zealand	GST	15%
Singapore	GST	9%
India	GST	18%	5% merit rate, 40% on luxury goods
Canada	GST / HST	5% federal	HST 13% in Ontario, 15% in NB, NL and PEI
United Kingdom	VAT	20%	5% reduced rate
Ireland	VAT	23%	13.5% reduced rate
Germany	VAT	19%	7% reduced rate
France	VAT	20%	10% and 5.5% reduced rates
Italy	VAT	22%	10% reduced rate
Spain	VAT	21%	10% reduced rate
Netherlands	VAT	21%	9% reduced rate
Sweden	VAT	25%
Switzerland	VAT	8.1%
Japan	Consumption tax	10%	8% on food
United Arab Emirates	VAT	5%
South Africa	VAT	15%
Mexico	IVA	16%
United States	Sales tax	None federal	State plus local, 0% to about 10%

What must appear on a tax invoice

An invoice that lets a business customer reclaim VAT or GST has to carry specific information, and the rules are set nationally, but the core list is similar almost everywhere. It should say “Invoice” or “Tax invoice”, carry a unique sequential number and an issue date, and give the seller’s name, address and tax registration number. It needs the customer’s name and address, and for larger business-to-business sales many countries also require the customer’s registration number. Each line should describe the goods or services, the quantity and the net price. The tax rate applied, the tax amount, the net total and the gross total must be visible, and if items attract different rates the tax should be shown per rate. Add the due date and payment details so the document is complete.

The invoice generator covers the number, dates, both parties, line items and totals, and it applies one tax rate to the whole invoice. It takes any discount off the subtotal before working out tax, and adds shipping afterwards without tax, which is the order most tax authorities expect. Put your registration number in your address block, and if an invoice mixes standard and reduced rates, work out each group with the calculator and add the tax figures together.

Common mistakes

• Subtracting the percentage from a gross price instead of dividing by (1 + rate).
• Treating a “plus VAT” quote as the final price, or a shelf price as the net figure.
• Using last year’s rate. Check the official rate before quoting or filing.
• Applying the standard rate to items that carry a reduced or zero rate.
• Charging tax on shipping in the wrong order, or forgetting it where it is taxable.
• Issuing an invoice without a sequential number or your registration number, which can void the customer’s reclaim.