In 2026, value-added tax remains one of the main sources of budget revenue for most countries worldwide. VAT is now applied in more than 170 countries, but rates vary widely: from single digits in some developing economies to 25–27% in Northern Europe. According to international reviews of tax systems, the highest standard VAT rate remains in Hungary at 27%, while a number of countries continue to use rates below 10%. However, the VAT rate itself has long ceased to be a universal indicator of tax burden or an economy's attractiveness for business.
Europe remains the global leader in VAT
The highest tax rates are traditionally concentrated in Europe. Among the countries with the highest rates:
Hungary — 27%;
Finland — 25.5%;
Denmark — 25%;
Sweden — 25%;
Norway — 25%;
Croatia — 25%.
For many investors, such figures seem excessive. But the paradox is that these very states consistently rank high in international ratings for quality of life, institutional transparency, and social protection. High VAT rates allow them to finance large-scale government programs in healthcare, education, and social support. As a result, businesses gain better infrastructure and a predictable economic environment.
Low VAT does not guarantee an economic miracle
There is a widespread belief that low taxes automatically stimulate economic growth. In practice, it is far more complex. For example, Kazakhstan applies a 12% VAT, China maintains a 13% rate, and some Persian Gulf countries until recently had no full-fledged VAT system at all. However, investment attractiveness is not determined by taxes alone. Investors assess:
the quality of institutions;
protection of property rights;
the state of the judicial system;
the level of corruption;
macroeconomic stability;
the capacity of the domestic market.
Therefore, a high VAT rate in Germany or Finland often appears less risky for business than low taxes in countries with an unstable economic environment.
Why states are raising indirect taxes
Recent years have shown a steady global trend toward higher indirect taxation. There are several reasons:
Population aging in developed countries.
Rising healthcare costs.
Growing social obligations of states.
The need to service public debt after the pandemic period.
Additional spending on defense and energy security.
VAT is considered one of the most effective tools for replenishing the budget, as it is harder to avoid compared to corporate or personal income taxes. That is why many governments prefer to gradually increase the share of indirect taxes instead of directly raising income tax rates.
The US remains an exception
The world's largest economy continues to follow its own model. There is no federal VAT in the United States. Instead, a sales tax system is applied, with rates determined by individual state and municipal authorities. The combined rate is usually significantly lower than European levels. This model provides greater flexibility but leads to a more complex tax architecture for companies operating in multiple states simultaneously.
What this means for business
For companies operating in international markets, comparing VAT rates is becoming an increasingly important factor in pricing. High VAT:
raises the final cost of products for consumers;
increases the administrative burden on business;
requires more complex tax accounting.
On the other hand, developed countries usually offer predictable rules for tax refunds and administration, which reduces risks for companies. As a result, investors assess not only the rate but also the effectiveness of the entire tax system.