Sales Tax vs VAT vs GST: What's the Difference?
How US sales tax, VAT (UK, EU, UAE) and GST (India, Canada, Australia) work, and what each means for invoices and bookkeeping.
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Most countries tax consumption. The three common systems work differently, and it changes how you invoice and keep books.
Sales tax (United States)
Charged only at the final sale to the consumer. Businesses selling to other businesses for resale usually collect a resale certificate instead of tax. Rates are set by states and local authorities, so they vary by location. Tax is added at the checkout and sellers remit it to each state. Try the US sales tax calculator.
VAT (UK, EU, UAE, Saudi Arabia and others)
Charged at every stage of the supply chain. Each business charges VAT on sales (output VAT) and deducts the VAT it paid on purchases (input VAT), paying the difference. The UAE standard rate is 5%, the UK's is 20%. Use the UAE VAT calculator, the UK VAT calculator or the Saudi VAT calculator.
GST (India, Canada, Australia and others)
Works like VAT but is called GST. India has several slabs and splits tax between the centre and states. Canada combines federal GST with provincial taxes in some provinces. See the GST calculator.
Comparison
| Sales tax | VAT / GST | |
|---|---|---|
| Charged at | Final sale only | Every stage |
| Business recovers tax paid on purchases | Generally exempt purchases for resale | Yes, as input tax credit |
| Records needed | Sales by location | Invoices, input and output tax |
| Typical return | State returns | One VAT or GST return |
What it means for your software
Your accounting software should store the tax rate on every line, report tax by jurisdiction or rate, and keep input and output tax separate. Pyalm Books currently supports UAE VAT. We add features for other tax systems as customers join, so tell us what you need at hi@pyalm.com. Try it free during beta.
Tax rules change. Confirm with your tax authority or adviser.