What is VAT and how is it calculated

VAT (Value Added Tax) is part of what are called indirect taxes. Let’s find out more

L’ VAT (Value Added Tax) is part of what are called indirect taxes. Taxes are indirect when they are not based on wealth or income but on the purchase of goods and services; in practice they are taxes on consumption. VAT was established in Italy thanks to law 633/1972, replacing the old one IGE (General income tax) to comply with the other states of the European Community. VAT is paid in favor of the state and constitutes the main tax revenue.

How VAT is calculated and what the rates are

VAT is calculated on the taxable basis, as well as the price of the product or service; the rate is applied in relation to the type of good / service in question.

The rates are nothing more than the percentages and calculation of the tax and in Italy are the following:

  • ordinary rate of 22%, which is applied to most goods and services that do not fall into certain categories;
  • minimum rate of 4%, which applies to basic necessities such as foodstuffs, food products;
  • 5% rate, applied for example to the price of other types of food;
  • reduced rate to 10%, which is calculated on products / services such as gas and electricity for domestic use, medicines, construction, etc.

Taking a practical example, if the price of an asset you intend to purchase is 200 euros (tax base) to obtain VAT (calculated at 22%) and the final amount you will have to proceed with a simple calculation:

  • 200 × 22 : 100= 44 euro ;
  • which turns out to be VAT at 22%.

At this point it is necessary to add:

  • 200 + 44= 244 euro;
  • and you get the overall total with VAT included.

If, on the other hand, you want to obtain the reverse operation of the previous online VAT calculation, you will have to do it unbundling of VAT.

What is the unbundling of VAT?

The unbundling of VAT consists in separating the tax base from the tax (ie VAT) which are included in the overall price.

This operation is especially essential for companies and professionals who need to know the taxable value of a product or service compared to VAT itself.

To carry out the separation it will be sufficient to calculate the following proportion:

100: (100 + VAT) = Taxable amount: Total amount.


  • Total price of a product: 500 euros
  • VAT rate applied: 22%

The calculation will be:

  • 100: 122 = Tax base: 500

You get:

  • Taxable amount = (100 × 500): 122 = 409.83 euros

To know the VAT then you will do:

  • 409,83×22:100= 90,16 euro