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Value Added Tax

Also known as VAT. The name given in Europe to a kind of national sales tax which is added to the selling price of goods or services, and which in certain circumstances, either recoverable or deductible. If it is recoverable, the tax is effectively no cost to the company since they can get full value as an input credit for the value added taxes they collect when they sell their products or services to the next company in the value chain or to the ultimate consumer, who bears the cost of the tax. If it is deductible, the tax amount is claimed as a business expense on the company’s tax returns.

In the case of vehicles used for business, depending on the country and other circumstances (such as the exact nature of a company’s business in a given country), VAT may be recoverable, it may be deductible, or it may be neither. In the case of leased vehicles, VAT may apply to lease payments but, generally, when it does, the leasing company is able to recover VAT on their purchase of the vehicle for leasing purposes, so there is no double taxation situation. The most important thing to remember is that VAT issues should always be considered and investigated to determine how they would affect any particular mode of vehicle acquisition and vehicle utilization.

Value added taxes (either on vehicle purchases or lease payments, or both) also apply in other countries outside of Europe, for example, in many South American countries,  in Mexico (where it is known as "IVA"), and in Canada (where it is known as "GST").

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