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Practical Handbook VAT 2022

General functioning of the tax

In the application of this tax by businesspersons or professionals, two aspects can be highlighted:

  1. For their sales or services, they pass on to the purchasers or recipients the corresponding quotas of VAT , with the obligation to pay them to the Treasury.

  2. For their acquisitions, they bear contributions which they are entitled to deduct in their periodic self-assessments.In each liquidation, the VAT charged to customers is declared, subtracting from this the input VAT on purchases and acquisitions from suppliers, and the result can be positive or negative.

If the result is positive, it must be paid into the Treasury.If it is negative, as a general rule, it is offset in subsequent self-assessments.Only if at the end of the year, in the last return filed, the result is negative or if the taxpayers are registered in the monthly refund register, in any return, they can choose to request a refund or offset the negative balance in the following settlements.


This example illustrates how the tax works.It is an industrial product whose production chain starts with the sale of raw materials for processing and ends with the sale to the final consumer.For the sake of simplicity, it is assumed that the entrepreneur selling the raw materials has not borne VAT.The rate applied is the current rate of 21%.

Production chainPrice excluding taxVAT charged
Sale priceInput VATVAT to be paid
Raw materials10021121021 - 0 = 21
Transformation200422422142 - 21 = 21
Wholesaler400844844284 - 42 = 42
Retail sales50010560584105 - 84 = 21

Each of the entrepreneurs has borne the tax charged to him by his supplier, which is the amount he can deduct when submitting his self-assessments for VAT.

The final impact, i.e. the tax paid by the final consumer as VAT, was 105 euros, which comes from multiplying the final price of the product, 500 euros, by the tax rate of 21%.This tax has been paid to the Treasury little by little by each entrepreneur or professional according to the value added to the good or service at the specific stage of production and distribution.

The tax is ultimately paid by the final consumer of the goods, but it is paid into the Treasury by the entrepreneurs or professionals who provide the services or deliver the goods.