As businesses expand their operations across multiple countries, understanding local tax obligations becomes essential for staying compliant. One of the most common taxes you'll encounter internationally is value-added tax, or VAT. This is a type of indirect tax applied to physical goods and services at each stage of the supply chain, from production through to the final sale.

The purpose of VAT is to generate government revenue in a way that's tied to consumption rather than income. While businesses collect and remit VAT to the appropriate government agency, it is ultimately the end consumer who bears the cost. Businesses at earlier stages of production are reimbursed through a system of tax credits. Each business in the supply chain pays VAT on its purchases but can reclaim that amount against the VAT it charges to the next buyer, meaning the tax burden is passed along at every stage until it lands with the final customer.

The US does not have a federal VAT system. Instead, most states levy a sales tax, which is only charged once at the point of sale. VAT has been adopted by 175 countries around the world, and in some Asia-Pacific regions it goes by a different name: goods and services tax (GST).

For growing businesses selling across borders, understanding how VAT works—including when to collect it, how to register, and how to file and remit—is the best way to stay ahead of compliance obligations.

What's in this article?

• VAT rates
  
• When am I required to collect VAT from customers?
  
• How do I register to collect VAT?
  
• How to file and remit VAT
  
• Value-added tax vs. sales tax
  
• How Stripe Tax can help
  

VAT Rates

VAT rates differ from one country to the next. They are shaped by each government's economic priorities, social policies, and revenue needs. Globally, the average VAT or GST rate sits somewhere between 15% and 21%, depending on the region.

In Europe, rates tend to be higher. The EU average is around 21.9%. The highest rates in the EU are found in Hungary (27%), Finland (25.5%), and Sweden, Croatia, and Denmark (all 25%), while Luxembourg applies the lowest rate at 17%.

In the Asia-Pacific region, rates are generally lower. Many countries in Asia and Oceania apply standard VAT or GST rates ranging from 5% up to 18%, although a few higher outliers exist in Central Asia. Notable examples include Japan (10%) and Singapore (9%).

The United States is an outlier in that it does not have a federal VAT system, instead relying on state-level sales taxes that are only charged once at the point of sale.

Standard VAT rates: Select EU countries and the UK (2026)

When am I required to collect VAT from customers?

In many countries with VAT, foreign businesses (remote sellers) are required to register to collect VAT as soon as they perform their first taxable transaction in a country. However, some countries, such as Australia, Japan, and Canada, have monetary registration thresholds. Businesses with turnover below the registration thresholds are not required to register.

Not all goods and services are subject to VAT. Many countries exempt goods and services such as prescription medicine, certain basic foods, tuition fees, residential rentals, and financial services.

The tax collection obligations vary depending on the buyer country, product sold, and buyer status (consumer or business). For example, foreign businesses must collect tax on sales of digital products to consumers located in the EU but if the customer is a VAT-registered business, it is the customer's responsibility to account for tax.

How do I register to collect VAT?

The first step is to determine where you are required to collect VAT and register with the appropriate tax authority. Once registered, you can begin collecting and remitting VAT.

Many countries provide simplified registration processes for foreign sellers. A major benefit of these simplified registrations is that foreign businesses can complete all registration formalities online and do not have to appoint a local tax representative.

The European Union (EU) introduced Vat One-Stop Shop (VAT OSS) to simplify the registration process across EU countries. VAT OSS includes three separate registration options: OSS Union, OSS Non-Union, and Import OSS. If you sign up for VAT OSS, you don’t have to register with each country within the EU where you sell goods or services remotely. If you are based in an EU country, you can register with your home country’s OSS portal. But if your business is based outside the EU, you can choose any European country to register for OSS. Note that the EU does not have a single standard VAT rate. Each member state sets its own VAT rate, ranging from 17% in Luxembourg to 27% in Hungary.

All non-EU-based businesses selling in the EU may register for OSS but the OSS registration is not mandatory. A business may opt for a domestic registration instead. Post-Brexit, the UK has a VAT registration process that’s separate from Europe’s VAT OSS. Learn more about registering for VAT in Europe here.

How to file and remit VAT

Submitting a VAT return is the final step to compliance. If you have not collected VAT from customers in a period and have no VAT to pay, you may still need to file your return by the due date.

VAT returns require businesses to report two types of VAT: the amount charged to your customer (output VAT) and the amount paid to suppliers (input VAT). The VAT to be remitted to the government is the difference between the VAT that you collected and the VAT that you paid to your suppliers.

Each country has its own return forms and filing frequency. Your due date and how often you file could be dependent on your annual sales revenue. An OSS registration requires you to submit a quarterly OSS return in the country of registration.

Once you pay all VAT in the country where you registered for OSS, your local tax authority will redistribute the VAT revenue to the other countries on your behalf. Failure to file and remit the correct amount of VAT can result in interest and penalties.

Stripe Tax can make tax filing and remittance easier. With our trusted global partners, users benefit from a seamless experience that connects to your Stripe transaction data—letting our partners manage your filings so you can focus on growing your business.

Value-added tax vs sales tax

Sales tax is another type of indirect tax—meaning it is paid by the buyer at the point of purchase and remitted to the government by the seller—levied on the sales of certain goods and services in the US. Sales tax is different from VAT in that it is a single-stage consumption tax imposed on retail sales, so it is only levied once in the supply chain. Unlike VAT, the sales tax system does not allow for input tax deduction to claim back the sales tax businesses pay on their purchases. Instead, sales tax operates with exemptions.

To illustrate the difference: imagine that a bookstore in the US sells a novel for US$20 with an 8% sales tax. The customer pays US$21.60 at the register, and the bookstore remits the US$1.60 tax to the government—a one-time process. Now consider the same book sold in Germany, where VAT is 19%. At each stage of production—including paper manufacturing, printing, and distribution, the business involved charges VAT on its sale but can reclaim the VAT it paid to its own suppliers. By the time the book reaches the customer, the customer pays the full 19% VAT, but the government has effectively collected it in increments across the supply chain rather than all at once at the register.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard or using our powerful API.

Stripe Tax helps you monitor your obligations and alerts you when you exceed a tax registration threshold based on your Stripe transactions. It can also register to collect tax on your behalf in the US, automate US filings in the Dashboard, and manage global filings through trusted partners. Stripe Tax automatically calculates and collects sales tax, VAT, and GST on:

• Digital goods and services in all US states and over 100 countries
  
• Physical goods in all US states and 42 countries
  

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration, or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: If you need to register for a sales tax in the US, let Stripe manage your tax registrations. You'll benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations. If you need help registering outside of the US, Stripe partners with Taxually to help you register with local tax authorities.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax automates US filings in the Dashboard, powered by TaxJar. For global filings, Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.