The short version
People often use "VAT", "GST", and "sales tax" as if they were synonyms. They are not. All three are taxes on consumption — collected somewhere along the way as goods and services move from a supplier to a final buyer — but the way each one is collected, the way businesses recover it, and the way it interacts with cross-border trade are genuinely different. Confusing them on an invoice or in a contract is one of the most common avoidable mistakes for businesses that trade internationally.
This page is a side-by-side comparison aimed at non-specialists: someone deciding what tax line to put on an invoice, or trying to understand a number on a quote from abroad. It is not a substitute for advice on a specific transaction.
Definitions in one paragraph each
Value Added Tax (VAT)
VAT is a multi-stage consumption tax. It is charged at every link in the supply chain, from raw material to retail. Each business in the chain charges VAT on its sales (output VAT) and recovers the VAT it paid on its purchases (input VAT) by netting the two on a periodic return. The tax is economically borne by the final consumer, but is collected in instalments along the chain. This is the system used across the European Union, the United Kingdom, most of Europe, and many countries in Latin America, Africa, and Asia.
Goods and Services Tax (GST)
GST is, in most countries that use the term, structurally a VAT. The same input/output mechanism applies. The label "GST" is mostly a naming convention used in places like Australia, New Zealand, Canada, India, and Singapore. Where GST differs from VAT, the differences are usually in scope, registration thresholds, and compliance procedures rather than in the underlying credit-and-collection mechanic.
US sales tax
US state and local sales taxes are single-stage retail taxes. They are charged only on the final sale to a consumer, not at intermediate steps. There is no equivalent of input-tax recovery: a registered business does not "claim back" sales tax it pays on its own inputs, because in most cases it should not have been charged tax on inputs intended for resale (a resale certificate handles this). For more on the US specifically, see our United States sales tax page.
Side-by-side comparison
| VAT | GST (typical) | US sales tax | |
|---|---|---|---|
| Collection points | Every stage of the supply chain | Every stage of the supply chain | Only the final retail sale |
| Input recovery | Yes — netted on the return | Yes — netted on the return | No — handled via resale certificates |
| Set by | National government | National (sometimes federal/provincial) | State and local jurisdictions |
| Number of rates | Standard plus reduced/zero | Often a single rate; sometimes tiers | Varies state by state and city by city |
| Cross-border B2B | Reverse charge by the buyer | Reverse charge or self-assessment | Use tax by the buyer (in theory) |
| Pricing convention | Often shown VAT-inclusive in B2C | Often shown GST-inclusive in B2C | Almost always shown net of tax |
A worked example
Imagine a wooden chair sold to a final consumer for a net price of 100, and assume a 20% rate.
Under VAT
- The lumber yard sells wood to the carpenter for 50 plus 10 VAT (60 total). It pays the 10 to the tax authority.
- The carpenter sells the chair to a retailer for 80 plus 16 VAT (96 total). It collected 16 in output VAT and paid 10 in input VAT, so it remits 6.
- The retailer sells the chair to the consumer for 100 plus 20 VAT (120 total). It collected 20 in output VAT and paid 16 in input VAT, so it remits 4.
- Total tax paid to the authority: 10 + 6 + 4 = 20. The consumer ultimately bore all 20.
Under US sales tax
- The lumber yard sells to the carpenter against a resale certificate. No sales tax is collected.
- The carpenter sells to the retailer against a resale certificate. No sales tax is collected.
- The retailer sells to the consumer for 100 plus 20 sales tax (120 total). It remits the 20 to the state.
- Total tax paid: 20, all collected at the final sale.
The consumer pays the same total in both cases. The difference is in who collects what and when. VAT spreads the collection along the chain, which makes evasion harder but compliance more demanding for businesses. Sales tax concentrates the collection at retail, which is administratively simpler for upstream sellers but leans more heavily on the retailer to apply the right rate to the right product.
Why the difference matters in practice
- Quoting prices. A B2C price quoted in Germany usually includes VAT. The same product quoted in Texas usually does not include sales tax. If you compare them naively, you will mis-state the price.
- Cross-border B2B. A European supplier billing a European business buyer typically zero-rates the supply and the buyer accounts for VAT under the reverse charge. There is no equivalent in US sales tax — at most, the buyer self-assesses use tax.
- Recovery. A VAT-registered business in Italy can recover input VAT on its purchases. A sales-tax-registered business in California cannot recover sales tax it paid as a final consumer; the system relies on suppliers not charging it in the first place.
- Reporting. VAT/GST returns net output and input figures. Sales-tax returns report only the gross taxable sales and the tax collected.
Common mistakes
- Calling US sales tax "VAT". They are not the same and behave differently on cross-border invoices. If a US customer asks for "your VAT number", you may need to clarify whether they mean a sales-tax registration or whether they are simply using the term loosely.
- Assuming GST means a single national rate. Canada has a federal GST plus provincial taxes (HST or PST) that change the effective rate by province. India's GST has multiple slabs. New Zealand and Australia are closer to a true single rate.
- Forgetting reverse charge on B2B imports of services. Most VAT systems require the business buyer to self-assess VAT on incoming services from abroad. Missing this can lead to penalties even when no tax is ultimately due (because input and output net out).
- Mixing up zero-rated and exempt. Zero-rated supplies are taxable at 0% — input VAT is recoverable. Exempt supplies are not in the VAT system — input VAT on costs related to them is generally not recoverable. The two look similar on a customer-facing receipt but have very different consequences for the supplier.
Where to go next
- How the reverse charge mechanism works — the most common cross-border VAT mechanic.
- VAT on digital services and cross-border e-commerce — OSS, IOSS, and place-of-supply rules.
- What must appear on a VAT invoice — the practical checklist.
- All country VAT and GST guides — see how each country's rules play out.
Last reviewed on April 27, 2026.