Value-Added Tax

Definition of Value-Added Tax

Value Added Taxes (VAT) are taxes that are assessed at each stage of production, based on the amount of value contributed.
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VAT is levied on every business as a percentage of the taxable sale they make. In contrast to a retail-only sales tax, VAT applies to manufacturers, wholesalers, and retailers. However, each taxes business is reimbursed for VAT on their own purchases. As a result, VAT is deemed to tax only the value that is added to the goods at each stage of production.

For small businesses that import or export goods, it is very important to understand VAT rules, particularly because foreign businesses are often entitled to VAT refunds, which can dramatically change the costs of doing business abroad.

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