VAT Payment Methods in Different Countries and Major Differences from Domestic VAT

VAT Payment Methods Across Countries and Differences from Domestic VAT

VAT is a tax levied at every stage of production or distribution of goods and services, ultimately borne by consumers. Compared with domestic VAT, the methods of VAT payment vary significantly across different countries and regions, mainly due to differences in national tax policies, economic structures, and the need for international coordination.

For instance, in the EU, its VAT system allows member states to set their own rates while adhering to minimum rate standards. For example, Germany’s standard VAT rate is 19%, while some basic foodstuffs and services enjoy a reduced rate of 7%. This flexibility enables each member state to adjust its tax policies according to its specific circumstances to promote economic growth and social welfare. However, it also brings complex cross-border transaction issues. To simplify the process, the EU introduced the one-stop-shop mechanism, allowing businesses to register and declare VAT for all cross-border operations in just one member state, thus avoiding cumbersome procedures of multiple declarations.

In contrast, the United States does not have a unified federal VAT system. Each state has independent sales tax authority, creating a diversified tax environment. For example, California's sales tax rate is approximately 7.25%, while Texas' rate is 6.25%. Although this decentralized taxation model grants more autonomy to local governments, it also increases the compliance costs for businesses operating nationwide. To address this challenge, many multinational companies choose to optimize their tax arrangements by establishing local entities and utilizing interstate trade rules to reduce overall tax burdens.

In China, VAT, as one of the main taxes, operates under a shared central-local model. Since the comprehensive rollout of the business tax-to-VAT pilot reform in 2016, China's VAT reform has deepened continuously, gradually achieving full coverage over goods, labor services, and services. The current VAT system divides taxpayers into general taxpayers and small-scale taxpayers. General taxpayers use the input tax credit method, while small-scale taxpayers calculate taxable amounts using the simplified taxation method. China also introduced an export tax rebate policy to encourage enterprises to participate in international market competition. These measures not only enhance the competitiveness of domestic enterprises but also promote global value chain cooperation and development.

It is worth noting that with the rapid development of the digital economy, the traditional VAT collection and management model is facing new challenges. To adapt to these changes, the OECD proposed two major initiatives Pillar One and Pillar Two, aiming to solve profit allocation and tax burden issues of large multinational tech companies on a global scale. The proposal advocates setting up a unified tax framework to ensure all parties can fairly share responsibilities. Although still in the discussion phase, it undoubtedly reflects the common vision of the international community for building a fairer and more reasonable tax order.

In summary, although the methods of VAT payment vary across countries, they all reflect the actual needs of national socio-economic development. In the future, as globalization accelerates and technological progress advances, how to balance efficiency and fairness will become a key focus for tax authorities worldwide. Under this background, strengthening international cooperation and experience exchange becomes particularly important; only through such efforts can we better address new challenges and achieve sustainable development goals.