What is value added tax (VAT)? Definition and example

Q: What is value added tax (VAT)?

Value added tax (VAT) is an indirect tax charged on goods and services at each stage of sale and borne by the final consumer. A business collects VAT from customers, deducts what it paid suppliers and remits the difference. Rates differ: 15% in Saudi Arabia, 10% in Bahrain, 5% in the UAE and Oman; Qatar and Kuwait have not introduced it so far. Check with the authority before relying on any rate.

Explained

A business collects VAT from customers, deducts what it paid suppliers and remits the difference. Rates differ: 15% in Saudi Arabia, 10% in Bahrain, 5% in the UAE and Oman; Qatar and Kuwait have not introduced it so far. Check with the authority before relying on any rate.

Example

A price of 1,000 before VAT in Saudi Arabia: VAT 150, total 1,150.

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Related terms

Tax invoiceA tax invoice is issued by a VAT-registered seller and shows the value of the goods or services, the VAT on them and the seller’s tax number.
Tax registration numberA tax registration number is the identifier a tax authority gives a VAT-registered business, printed on its invoices.

All terms