Everyone who wants to sell goods or services in a country with VAT (not just the EU) must be registered with the country’s tax authorities, collect the VAT on behalf of the government, and transfer the collected tax money to the government. Not all VAT is bad, though, when trading across border. Here are two very common examples:
Sale of goods from a higher-VAT country to a lower-VAT country. You have a Web site in Sweden where you list a product for €100. You sell the product to a customer in the UK. You ship the item, and charge the customer €96. That’s because the domestic VAT is already baked into the price (in the case of Sweden it’s 25%). Shipping outside the VAT jurisdiction, you don’t collect the local VAT on behalf of the government, and charge the VAT-less price of €80. You then add the UK VAT (20%). The customer is better off. (Of course, it also works the other way. I buy a lot from Amazon UK, but my country has a higher VAT than the UK, so I pay slightly more than the listed price.)
VAT return when leaving the country. The reason you need to show your boarding pass when purchasing goods at the airport is that if you fly outside the country (or, if you are within the EU, the EU as a whole), you will be charged only the price without VAT. That’s because these goods are no longer considered to be sold in that country, so VAT cannot be collected on them.
VAT is a little more complex than sales tax, but it affects the entire production chain, not only the final sale, so it allows the governments to collect on domestic economic output, not only on purchasing power. But it’s truly aimed at domestic production. For cross-border commerce, import taxes play a much more important role.
Nope. VAT is a domestic tax on all goods and services.
Then why do I have to pay it internationally
Everyone who wants to sell goods or services in a country with VAT (not just the EU) must be registered with the country’s tax authorities, collect the VAT on behalf of the government, and transfer the collected tax money to the government. Not all VAT is bad, though, when trading across border. Here are two very common examples:
Sale of goods from a higher-VAT country to a lower-VAT country. You have a Web site in Sweden where you list a product for €100. You sell the product to a customer in the UK. You ship the item, and charge the customer €96. That’s because the domestic VAT is already baked into the price (in the case of Sweden it’s 25%). Shipping outside the VAT jurisdiction, you don’t collect the local VAT on behalf of the government, and charge the VAT-less price of €80. You then add the UK VAT (20%). The customer is better off. (Of course, it also works the other way. I buy a lot from Amazon UK, but my country has a higher VAT than the UK, so I pay slightly more than the listed price.)
VAT return when leaving the country. The reason you need to show your boarding pass when purchasing goods at the airport is that if you fly outside the country (or, if you are within the EU, the EU as a whole), you will be charged only the price without VAT. That’s because these goods are no longer considered to be sold in that country, so VAT cannot be collected on them.
VAT is a little more complex than sales tax, but it affects the entire production chain, not only the final sale, so it allows the governments to collect on domestic economic output, not only on purchasing power. But it’s truly aimed at domestic production. For cross-border commerce, import taxes play a much more important role.