Input VAT vs Output VAT
Definition
Output VAT is the tax a business charges on its sales; input VAT is the tax it pays on purchases. A VAT return pays over output VAT less reclaimable input VAT, so only the value added is taxed.
Related Terms in International Tax
VAT Invoice
An invoice meeting VAT rules by showing the supplier's VAT number, the rate and amount of VAT, and other prescribed details, so the customer can reclaim input VAT where eligible.
Withholding Tax (Cross-Border)
Tax withheld in the source country on cross-border payments such as dividends, interest and royalties. Double taxation treaties often reduce the rate, and relief or credit may be available in the recipient's country.
Double Taxation Avoidance Agreement (DTAA)
A treaty between two countries that prevents the same income being taxed twice, by assigning taxing rights and providing credits or exemptions. It is central to cross-border tax planning and compliance.
Transfer Pricing
The rules governing the prices charged between related entities across borders, requiring them to reflect what independent parties would agree (the arm's-length principle), so profit is not shifted artificially to low-tax jurisdictions.
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