VAT Calculation Explanation

QUESTION: 

I put in VAT/tax rates at 19% for all my market places.

However, when I click the profit/cost breakdown for my products, the tax rate is showing 16%. Why?

 

ANSWER:

The way VAT works is like this:

If the VAT rate is 19%, this is added on top of the product price.

Imagine you sell a product for $100 (SALES PRICE on Amazon). 
The $100 already INCLUDES the 19% VAT.

So what is the actual VAT amount?

$100 = The Product Real Price + 19% of the product price = 119% of the product price.

So the product price is = $100 / 119% = $84.03

Let's check: 
VAT is 19% so a product selling for $84.03 has how much VAT added on top? 
$84.03 x 19% = ? 
= $15.97

So, if you are selling a product for $100, the product part is $84.03 and the VAT part is $15.97 
= $100 all included in the SALES PRICE.

So, even though the VAT is 19% ON TOP of the Product Price, this is $15.97 / $100 = about 16% of the SALES PRICE.

 

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