Two different formulas
VAT-exclusive to gross: gross price = net price x (1 + VAT rate). VAT-inclusive to net: net price = gross price / (1 + VAT rate). VAT amount = gross price - net price.
Concrete 20% example
If the net price is 100 and VAT is 20%, gross price is 120. If the gross price is 120 and VAT is 20%, the net price is 100, not 96. The division step is what many users miss.
Entities and country caveats
VAT is common in Europe and many other regions, while sales tax systems often work differently. Rates, exemptions, registration rules and invoice requirements are country-specific.
Common mistakes
- Removing VAT by subtracting 20% from the gross price.
- Using a standard rate for exempt or reduced-rate goods.
- Treating VAT and retail sales tax as identical.
- Using another country's rate.
Use the calculators
FAQ
Why do I divide when removing VAT?
A VAT-inclusive price already contains tax. Dividing by 1 plus the VAT rate returns the net base; subtracting the rate directly gives the wrong base.
Can one calculator know the correct VAT rate?
Only if the country, product category and date are built into the calculator. Otherwise the safest method is a user-entered rate with clear caveats.
References
- European Commission: VAT rules and rates - EU VAT overview, accessed 2026-05-15.
Last reviewed: 2026-05-15.