VAT Explained Simply: Rates, Thresholds and a Worked Example

An invoice arrives with a line that says "including VAT at 22 %", and the first reaction is always the same: why am I paying someone else's tax? The second reaction is worse, because it adds a new question. Is the tax added on top of the price, or is it already buried inside the price? And can I simply ignore the whole thing if I work for myself? These questions usually surface at the worst possible moment, typically when you need to issue an invoice to a client or check somebody else's. Below is the whole picture laid out: what VAT is, which rates and thresholds apply in 2026, how to work it out by hand, and where disputes with the tax office usually come from.

VAT without the jargon: what it is and who pays it

VAT stands for value added tax. The idea behind it is that almost every sale inside a country creates value: a seller buys raw materials, processes them, adds something, or simply resells, and the difference between what was paid out and what came in is the slice of the price the state wants to tax. Legally the seller is the taxpayer, while the buyer hands over a price that already contains that tax.

• the tax arises on sales: selling goods, providing services, renting out premises and handing over property for temporary use all create taxable turnover;
• companies and sole traders on the general taxation system become VAT payers once their income for three consecutive months exceeds 2 million roubles (Article 145 of the Russian Tax Code);
• a buyer who does not resell the goods does not remit anything to the budget, they simply pay the seller a price that contains the tax;
• the tax runs through the whole chain: a manufacturer pays the supplier, a distributor pays the manufacturer, a shop pays the distributor, and the end customer pays a price that carries the tax three times over;
• the VAT charged to the buyer is reduced by the VAT the seller paid to its own suppliers, and only the difference goes to the budget.

One practical consequence follows immediately. When you buy something for personal use you are not paying extra tax to the state, you are paying the seller the price he already priced in. It looks different when you buy for resale or for your business: there you become a link in the chain and start charging VAT on your own sale.

Rates: what applies and why there is more than one

In 2026 there are noticeably more VAT rates than there used to be. The standard rate is 22 % from 1 January 2026. It was 20 % from 2019 through 2025, and 18 % before 2019. Alongside it sit the reduced 10 % rate, the special 5 % and 7 % rates introduced in 2025, and the zero rate for exports. Every figure below is given as it stands for 2026: tax legislation changes year after year, so check them against the current wording of the Tax Code before you rely on them.

• 22 % is the standard rate, applied to most goods, works and services;
• 10 % is the reduced rate for food, medicines, children's products, books and some transport services, with the government keeping the list;
• 5 % and 7 % are special rates for individual socially important goods, in force since 2025;
• 0 % applies to exports: goods shipped abroad or services rendered to a foreign entity, supported by paperwork;
• 22/122 and 10/110 are the so-called calculated rates, not separate rates, but a way of extracting the tax from a total that already includes it;
• 10 % instead of 22 % is generally available where turnover for three consecutive months stays under 2 million roubles, though the exact list of cases is best checked against Article 145 of the Tax Code.

When people mention 13 %, 15 % or 18 %, they are almost always talking about personal income tax rather than VAT. These are two different taxes with two different bases, and mixing them up is risky: a wrong rate produces a discrepancy on the very first invoice. The thresholds are covered separately further down so the difference is easy to see.

Income thresholds: who pays VAT at all

There are two kinds of threshold in practice. The first answers "am I exempt from the tax altogether", the second answers "which rate applies if I am a taxpayer". The best known threshold concerns simplified taxation: in 2025 businesses with income up to 60 million roubles were exempt from VAT, and from 2026 that threshold drops to 20 million roubles a year. Beyond it the rate depends on how much was actually earned.

• up to 20 million roubles of income a year, a company or sole trader on the simplified system is exempt from VAT;
• from 20 to 272.5 million roubles the special 5 % rate applies with no deductions (272.5 million is 250 million multiplied by the 2026 deflator coefficient of 1.090);
• from 272.5 to 490.5 million roubles the special 7 % rate applies with no deductions;
• above 490.5 million roubles the rates are 10 %, 15 %, 20 % and 22 %, and those thresholds are indexed every year as well;
• the choice between the special 5 % and 7 % rates and the standard 22 % rate with deductions is voluntary, but giving up the lower rate is not possible.

This is the right place to mention the thresholds that belong to personal income tax rather than to VAT. The progressive scale runs like this: 13 % on annual income up to 2.4 million roubles, 15 % from 2.4 to 5 million, 18 % from 5 to 20 million, 20 % from 20 to 50 million, and 22 % above 50 million roubles. The 2.4 / 5 / 20 / 50 million thresholds belong to salary and income tax. VAT follows its own rules, and the only number the two taxes share is 22 %. A full walkthrough of income tax from gross to net lives in the article on the salary calculator.

Marketplaces are a separate story. A seller on a platform has VAT deducted from the order value and passes it to the platform, and the platform files with the budget on the sellers' behalf. The scheme is convenient, but the seller still has to substantiate the deduction, and without invoices or universal transfer documents there is nothing to claim.

Calculating VAT: on top, inside, and backwards

Everything fits into three formulas, and the difference between them is whether you know the base. If a contract or price list quotes a price without tax, the tax is added on top. If the price already includes VAT, the tax is extracted from it. The third case: find the base when you only know the final total.

1. adding on top: VAT = price without VAT × rate, and the total is price plus VAT;
2. extracting from a total: VAT = total with VAT × rate / (100 + rate), and the base is total minus VAT;
3. working backwards: base = total with VAT × 100 / (100 + rate).

1. Extract the tax from the finished total
   VAT  = 121,000 × 22 / 122 = 21,819.67 roubles
   Base = 121,000 − 21,819.67 = 99,180.33 roubles
   Check: 99,180.33 + 21,819.67 = 121,000.00 roubles

2. Add the tax on top of the base 99,180.33
   VAT = 99,180.33 × 22 % = 21,819.67 roubles   (the same number)

3. Work the base back from the total 121,000
   Base = 121,000 × 100 / 122 = 99,180.33 roubles

For comparison, the older calculated rates on the same total:
   121,000 × 20 / 120 = 20,166.67 roubles   (base 100,833.33)
   121,000 × 18 / 118 = 18,457.63 roubles   (base 102,542.37)
   121,000 × 10 / 110 = 11,000.00 roubles   (base 110,000.00)

The classic mistake involves round numbers. A price of 100,000 roubles without VAT at 22 % produces 22,000 roubles of tax and a total of 122,000, not 120,000. If a contract says "the price is 100,000 roubles, VAT is charged on top", the buyer pays 122,000, and that 2,000 roubles difference surfaces at the first reconciliation. It pays to verify the result backwards: multiply the total by 100, divide by 122, and the answer should match the base to the kopeck.

All three arithmetic steps can be done by hand or in the percentage calculator, and it helps to write the final amount out in words for a contract, which is what the amount in words tool is for. If you are forecasting revenue a few years ahead and want to see in which month income will cross the 20 million threshold, the compound interest calculator shows how a balance grows with monthly additions.

Deductions: what reduces the tax

The tax you charge the buyer is not always the tax you pay to the budget. The difference is taken by deductions, and that is exactly why large companies pay far less VAT than their turnover suggests. The mechanics are simple: deductions are summed over a period and subtracted from the VAT charged.

• the standard deduction is supported by invoices and universal transfer documents evidencing incoming VAT; for goods you resell, a goods issue note is enough;
• the claim period is three years from the end of the period in which the invoice was received, and it works differently for goods passed into production or exported;
• property deductions cover expenditure on acquiring, building, reconstructing and modernising fixed assets used in taxable operations; the amount is capped and unused portions carry forward;
• social deductions are personal income tax deductions for treatment, education, sport and insurance, and only taxpayers on the general system have the right to them; for a sole trader on the general system, reducing income tax through a social deduction lowers expenses, and expenses lower the VAT base;
• the export deduction is the VAT paid on import, claimed back on export, but only once the export has been confirmed.

Sole traders on the special 5 % and 7 % rates deserve a separate mention. They pay VAT on their whole revenue and cannot claim input deductions, so what matters for them is not the purchase price but the structure of costs. A business with a heavy share of expenses carrying input VAT sometimes ends up better off on the standard 22 % rate with deductions, but that comparison has to be run on the real numbers.

Deadlines, filings and penalties

Filing is quarterly: by 25 April for the first quarter, 25 July for the second, 25 October for the third, and 25 January of the following year for the fourth. The tax itself is paid on the same dates, and the declaration is filed electronically. There is no cheap way to miss a deadline, because the consequences stack up as interest plus a fine.

• a fine for failing to pay VAT, or paying it in full, is 20 % of the unpaid amount, and rises to 40 % if the tax authority treats the violation as deliberate (Article 122 of the Tax Code);
• a fine for filing late is 5 % of the tax that should have been declared, for every month of delay, capped at 30 % of that amount and never below 1,000 roubles (Article 119 of the Tax Code);
• interest is charged for every day of delay at one three-hundredth of the current key rate;
• when the tax authority finds a discrepancy it charges the tax, interest and a fine, and in practice filing a corrected declaration is usually cheaper than fighting the decision.

The penalties under Article 122 are not applied to every clerical error, they apply to non-payment of tax. If you got the amount wrong but overpaid and then filed an amended declaration, sanctions usually do not follow. A completely different situation arises when an inspection finds the discrepancy and the tax was never paid, because the 20 % is then added on top of the interest.

Invoice mistakes that trigger a dispute

• the invoice states a price including VAT and names one rate, while the declaration charges a different rate;
• the tax is not shown on a separate line even though the rules require it to be broken out, and during a check the amount is reconstructed from the contract;
• a simplified taxpayer with income below 20 million roubles issued an invoice with VAT although being exempt, and the buyer deducted a sum that nobody ever remitted;
• goods were sold at 10 % but filed under a different category, so the rate is recalculated at the standard one and extra tax plus interest is charged;
• an export was claimed at 0 % but the supporting documents were not collected in time, so the rate is converted to the standard one;
• the invoice was issued after the shipment, and the buyer's deduction slipped to the wrong period;
• the invoice carries kopecks while the declaration rounds the amount, and a reconciliation turns a few kopecks of difference into a question about unpaid tax.

One mistake is more common than the rest and does not look like a mistake at all: the contract says "including VAT" while the invoice computes the tax on a different base. It sounds trivial, but across a few hundred invoices even two kopecks per line add up to tens of thousands, and the reconciliation turns into a long email thread.

Common questions

Who pays VAT, the seller or the buyer?

The liability to the budget sits with the seller, who charges the tax, issues the invoice and remits the money. The buyer hands over the whole amount, which does not mean paying the tax twice: the price without VAT and the price with VAT differ by exactly the tax. There is one exception, and it concerns buyers on marketplaces, where the intermediary withholds the tax straight from the payout to the seller.

Can I extract VAT from a total if the invoice did not show it?

Arithmetically yes, and that is what the backwards calculation is for: take the tax share of the total, equal to total × rate / (100 + rate). But the tax authority does not look at arithmetic during a check, it looks at documents. If the invoice does not break out the tax and there is no correcting document, the basis for the deduction may not hold up. The extraction has to be agreed with the counterparty and documented, not merely calculated in a spreadsheet.

Is it true that the simplified system means no VAT at all?

Not always. Businesses on the simplified system with income below 20 million roubles a year are exempt, but the threshold keeps falling: 15 million roubles in 2027 and 10 million roubles from 2028. Once it is exceeded, the taxpayer either applies the special 5 % and 7 % rates or moves to the standard rates with deductions. Either way the status changes, and so does the way you issue invoices.

When is VAT due on an advance payment?

As a general rule the tax is charged when goods are shipped or services are rendered, not when payment arrives. An advance received is taxed separately, using the calculated rate, and that tax becomes deductible once the shipment happens. For long production runs and staged services this means money and tax arrive at different moments, so VAT advances often have to be paid before the final result has been paid for.

What is a universal transfer document and how is it different from an invoice?

A universal transfer document replaces the invoice, the goods issue note and the completion certificate at once, provided the parties have an agreement saying so. It is convenient for the buyer: one document instead of two, and the VAT can be deducted without chasing extra paperwork. The seller should remember that the status has to be recorded in the accounting policy and agreed with the counterparty, otherwise it may be rejected during a check.