Guidance in Dealing with VAT Transactions

Within the United States, a retail sales tax is charged to the final consumers or end-users that purchase a product or service. However, in other countries, particularly those belonging to the Organization for Economic Cooperation and Development (OECD), there is a value added tax (VAT). This is a general tax applied to all commercial activities involving the production and distribution of goods and the provision of services. VAT is charged as a percentage of price and is calculated based on the value that is added to goods and services at each stage of their production. VAT is categorized as a consumption tax because it is ultimately borne by the final consumer.

Organizations that conduct business with customers in VAT countries must comply with the complex provisions of those countries’ particular VAT tax schemes. VAT tax rates generally range between 15 percent and 20 percent but can be lower or higher, depending on the country. Governments in VAT countries carefully audit organizations’ tax records and documents to ensure proper remittance of the tax. Invoices are a key part of that well-scrutinized documentation. Paper invoices or approved electronic invoices must be retained for audit purpose for up to 15 years. ...

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