VAT (Value-Added Tax)

What does VAT stand for and what type of tax is it?

VAT stands for Value-Added Tax. It is a consumption tax collected at each stage of the production and distribution process but ultimately paid by the final consumer.

What is the difference between Output VAT and Input VAT?

Output VAT is the tax you collect from customers on sales. Input VAT is the tax you pay to suppliers on purchases. VAT payable = Output VAT – Input VAT.

What happens when Input VAT is greater than Output VAT?

You are entitled to a VAT refund. This means you can claim the difference back from the tax authorities.

What is the accounting entry for a sale of €2,400 with 20% VAT?

Dr. Cash/Receivable €2,400
Cr. Sales €2,000
Cr. VAT Payable €400

When recording a purchase of €1,200 including 20% VAT, how is it split?

Dr. Purchases €1,000
Dr. VAT Receivable €200
Cr. Cash/Payables €1,200

Why is VAT considered an "indirect tax"?

Because it is collected by businesses on behalf of the government and paid by the final consumer, not directly to the government.

What VAT rates exist in Austria?

General rate: 20%
Reduced rates: 13% and 10% (e.g., food, books)

What is the purpose of VAT in financial reporting?

To ensure accurate tax reporting and separation of revenue (sales) from tax obligations (VAT payable).