How to Calculate VAT
Simple explanation for calculating VAT and adding or extracting it from any amount
More than 170 countries worldwide apply Value Added Tax (VAT), making it one of governments' most important revenue sources — accounting on average for 20% of total global tax revenues. In the Arab region, Saudi Arabia raised this tax from 5% to 15% in 2020, while Egypt imposes it at 14%. Understanding the calculation protects you from overpaying and helps you verify your invoices accurately.
What Is VAT?
Value Added Tax (VAT) is an indirect tax added to the value of goods and services at each stage of production and distribution. It is ultimately paid by the end consumer, while businesses collect it and remit it to the government.
Core Calculation Formulas
**To add VAT to a price before tax:**
Total Amount = Price × (1 + VAT Rate ÷ 100)
Practical example at 5%: 1,000 × 1.05 = 1,050
**To extract VAT from a VAT-inclusive amount:**
Price before VAT = Total Amount ÷ (1 + VAT Rate ÷ 100)
Practical example at 5%: 1,050 ÷ 1.05 = 1,000
VAT amount alone = Total Amount - Price before VAT = 1,050 - 1,000 = 50
VAT Rates Across Arab Countries
| Country | VAT Rate | Implementation Date | Notes |
|---|---|---|---|
| Egypt | 14% | 2016 | Many exemptions (basic food, medicine) |
| Saudi Arabia | 15% | 2020 (raised from 5%) | Applies to most goods and services |
| UAE | 5% | 2018 | Among the lowest rates globally |
| Bahrain | 10% | 2019 (raised from 5%) | — |
| Oman | 5% | 2021 | — |
| Jordan | 16% | Sales tax law | Called sales tax, not VAT |
| Morocco | 20% | — | Highest rate in the Arab region |
Goods and Services Exempt from VAT (Egypt as Example)
- Basic foodstuffs (bread, sugar, oil, rice)
- Medicine and medical supplies
- Educational services
- Basic banking services
- Some government services
How to Verify Your Invoice
- Ensure the invoice shows the pre-tax price, the tax percentage, and the total amount separately
- Businesses required to register for VAT must display a tax registration number
- In Egypt, the minimum registration threshold is 500,000 EGP in annual sales
Use the VAT calculator to verify any invoice in seconds, whether you want to add or extract the tax.
Frequently Asked Questions
What is the difference between VAT and sales tax?+
Sales tax is applied once at the final point of sale to the consumer. VAT is collected at each stage of production and distribution, but each stage recovers what it paid in the previous stage, so the final burden falls only on the consumer. The net cost to the consumer is similar but the collection mechanism differs.
Can VAT be reclaimed?+
Yes, in two cases: VAT-registered businesses can reclaim input tax (what they paid on their business purchases). Some countries like the UAE also allow foreign tourists to reclaim VAT on departure through a Tax Refund scheme.
Is the percentage the same whether you add or extract VAT?+
No, they are not equal. For example at 15% VAT: adding 15% to 1,000 gives 1,150. But the tax as a share of the inclusive total 1,150 is 150/1,150 = 13.04%, not 15%. This is why the extraction formula differs from the addition formula.
Who is responsible for paying VAT to the government?+
Businesses and commercial entities registered with the tax authority are responsible for collecting VAT from customers and remitting it to the government periodically (monthly or quarterly depending on the country). The consumer pays it within the price but does not deal directly with tax authorities.
What happens if an invoice does not show VAT separately?+
In most countries that apply VAT, this constitutes a legal violation by the seller. As a consumer, you have the right to request a proper tax invoice showing the pre-tax price, the VAT percentage, and the entity's tax registration number.