|Type of Tax||Indirect|
|Collected by||Provincial Government|
|Paid by||Natural persons and Corporates entities|
|Tax base||Cost of the asset or service purchased|
|Abatements in the base||None|
|Net tax base||Cost of the asset or service purchased|
|Tariff or Rate||
Extra-reduced rate: 4%
Reduced rate: 10%
General rate: 21%
|Liability||Calculated by applying the tax rate to the net tax base|
|Surcharges||The tax liability calculated above|
This tax first came into force in 1992 in the then European Economic Community (the precursor to today's European Union); it replaced a number of other different types of tax and was intended to help progress towards the unification of taxes in the European Union. Nonetheless, the VAT rate varies from country to country.
Value Added Tax (VAT) is an indirect tax on consumption, derived from the purchase of goods or professional services. It is passed on to the end consumer.
VAT is a tax which is passed on through the entire chain of production (companies pay VAT on any items they purchase and then pass it on in their sales); this process ends with the consumer of those goods, products and services, who ultimately pays the tax.
Companies at intermediary stages in the production chain pay the revenue office the difference between the VAT on what they buy and the VAT they pass on (to their customers) when they sell the finished product or service. Or to put it another way: for most companies, VAT does not represent either income or expense, but a credit or debt with the revenue office.
Companies and professionals are required to submit VAT returns to the Provincial Government.
As you can see, at the end of the whole process, the revenue office collects €1,071 (i.e. 210+546+315= 1,071).