How VAT is calculated
Value Added Tax is a percentage added to the price of most goods and services. The maths is simple, but the direction matters — and mixing up net and gross is the usual mistake.
Adding VAT to a net price
Multiply the net amount by the rate and add it on:
gross = net × (1 + rate)A net price of 1,000 at 5% VAT becomes 1,000 × 1.05 = 1,050, of which 50 is VAT.
Removing VAT from a gross price
This is where people slip. To strip VAT out of a VAT-inclusive price you do notsubtract the percentage — you divide:
net = gross ÷ (1 + rate)From a gross price of 1,050 at 5%, the net is 1,050 ÷ 1.05 = 1,000, not 997.50. Subtracting 5% of the gross gives the wrong answer because the VAT was calculated on the smaller net figure, not the larger gross one.
Regional rates
The UAE and Bahrain sit at 5% and 10% respectively; Saudi Arabia raised its rate to 15% in 2020; Oman applies 5%. Some goods are zero-rated or exempt — notably investment-grade gold, certain exports, and some healthcare and education — so the headline rate does not apply to everything. Always check the specific treatment for your goods with the tax authority.
Built by Mohammed Jamil. Corrections to [email protected].