VAT is a consumption tax added to many goods and services. The arithmetic is straightforward once you know whether the price you have is net (before VAT) or gross (including VAT). The applicable rate and tax treatment depend on the country, product, seller and transaction.
Net, VAT and gross price
The net price is the amount before VAT. The VAT amount is the tax added. The gross price is what the customer pays after VAT. In compact form: gross = net + VAT.
If a net price is €100 and the applicable VAT rate is 20%, the VAT amount is €20 and the gross price is €120.
How to add VAT
Multiply the net price by 1 plus the VAT rate written as a decimal. At 20%, gross = net × 1.20. For a €75 net price, €75 × 1.20 gives a €90 gross price.
To show the tax separately, calculate net × rate. In the same example, €75 × 0.20 = €15 VAT.
How to remove VAT correctly
Do not simply subtract the VAT percentage from a gross price. The percentage was applied to the smaller net amount. Divide the gross price by 1 plus the rate instead.
At 20%, a €120 gross price contains a €100 net price: €120 ÷ 1.20 = €100. The contained VAT is €120 − €100 = €20.
Rates vary across Europe
European countries set their own standard and reduced VAT rates within the relevant legal framework. Reduced or zero rates may apply to particular goods or services, and cross-border transactions can follow different place-of-supply rules.
- Confirm the country and transaction date.
- Check whether the item uses the standard, reduced or zero rate.
- Keep the invoice and rounding method consistent with local requirements.
Rounding and practical use
For an estimate, rounding the final amount to two decimal places is usually clear. In accounting systems, rounding per line versus at invoice total can create small differences, so use the method required by your records and local rules.