Most countries levy some form of indirect consumption tax, but there are key differences between U.S. sales and use taxes and the value-added tax (VAT) or goods and services tax (GST) systems used globally.
For companies with international operations, understanding the distinctions across those types of taxes can help support compliance work, manage cash flow, avoid financial or criminal penalties, and prevent damage to business relationships or reputation. Countries worldwide are adapting their rules for the digital age, and businesses must stay current on the requirements in every jurisdiction where they operate.
| U.S. Sales and Use Tax | VAT and GST | |
|---|---|---|
| Description | A single-stage tax levied on the final sale or purchase of goods. | A broadly based consumption tax assessed on most goods and services at each stage of the supply chain, from production through distribution. |
| Who Bears the Cost | The end-customer. | Each business in the value chain charges VAT on sales and can reclaim VAT on purchases, with the end-consumer bearing the final cost. |
| Tax Authorities | U.S. state and/or local governments. | National governments, but some countries also have local-level taxes. |
| Taxability of Services | Services are generally not taxable. | Services are generally taxable, with exceptions for essential services deemed critical to public interest, such as healthcare, education, financial services, and public transportation. |
| Tax Rates | Calculated as a percentage of the total final sale price. Jurisdictions set their own rates. Within a jurisdiction, rates are generally the same on taxable sales or purchases with some exceptions. | Calculated on the value added at each stage of production, with rates varying by sale and purchase type. Some products and services, such as basic food staples, prescription medication, and water services, may qualify for reduced or zero rate VAT. |
| Local or Country-Specific Taxes | Some states do not have sales or use tax but local jurisdictions within those states may have their own sales and use tax. | In addition to VAT and GST, which are used by most jurisdictions outside the U.S., some countries, such as Canada and Brazil, have their own indirect consumption taxes at the federal and local levels. |
| Reporting Requirements | Filing frequency (monthly, quarterly, annually) is assigned by the state or local tax authority, based on the volume of sales and tax liability. Most states require reporting on an accrual basis. Required information includes total sales, exempt sales, and purchases subject to use tax. | Reporting frequency (monthly, quarterly, annually, or real-time), varies across jurisdictions. Some European countries have adopted the OECD’s standard audit file for tax (SAF-T) guidelines for filing electronic returns. Additional reporting requirements specific to the EU include EC Sales Listings and Intrastat Reporting. |
| Invoicing Requirements | Specific requirements vary by jurisdiction. | Detailed VAT invoices are required, although specifics vary by jurisdiction. Many jurisdictions have also adopted e-invoicing mandates. |
| Additional Compliance Considerations | Companies must:
| Some cross-border transactions and transactions within the EU carry reverse-charge mechanisms, which shift the liability for reporting and remitting VAT from the supplier to the customer. |