GST vs. VAT: A Global Guide for Digital Invoices

2026-01-17 • RedSun IT Services

The "Global Village" Headache

You are a freelancer in New York. You land a client in London. You land another client in Sydney. You send them both an invoice for $1,000. The London client asks: "Where is your VAT number?" The Sydney client asks: "Does this include GST?" You stare at your screen. What are they talking about?

If you are expanding your business across borders, you need to understand the two biggest consumption tax systems in the world: VAT and GST.

VAT (Value Added Tax)

Where: UK, European Union (EU), UAE, China. The Concept: A tax added at every stage of the supply chain where value is added. The Rate: High. (e.g., UK = 20%, Hungary = 27%).

Invoice Rules: If you are billing a client in a VAT country:

If you are NOT registered: You cannot charge VAT. You must write "Reverse Charge Applies" on the invoice if it's B2B service.
If you ARE registered: You must continually list your VAT Number, the Net Price, the VAT Rate (%), the VAT Amount, and the Gross Price.

GST (Goods and Services Tax)

Where: Australia, Canada, New Zealand, India, Singapore. The Concept: Functionally very similar to VAT, but often with different exemption rules for small businesses. The Rate: generally lower (e.g., Australia = 10%, Canada = 5% Federal).

Invoice Rules:

Australia: If you earn >$75k AUD, you must register. The invoice is called a "Tax Invoice."
Canada: It's complicated. They have GST, PST (Provincial), and HST (Harmonized). You need a calculator just to figure out the rate for a client in Toronto (13%) vs. Calgary (5%).

US Sales Tax (The Odd One Out)

The USA does not have a federal VAT or GST. We have Sales Tax.

It is only charged at the final point of sale to the consumer.
Rates vary by zip code. (New York City is different from Yonkers).
Services (freelancing) are often tax-exempt in the US, whereas they are taxed in VAT/GST countries.

How to Invoice Correctly (Without Going Crazy)

Know Your Thresholds: Most countries have a "registration threshold." (e.g., UK is £90,000). If you sell less than that, you don't need to charge tax.
Use a Smart Generator: Don't use a Word Doc. Use the Red Sun IT Invoice Generator. It allows you to customize the Tax Label.
- Bill to London? Rename column to "VAT".
- Bill to Sydney? Rename column to "GST".
The "Reverse Charge" Mechanism: If you are selling B2B services internationally (e.g., USA to UK), you usually charge 0% tax. The buyer is responsible for reporting the tax to their local government. This is the "Reverse Charge."

Summary

VAT = Europe/UK.
GST = Commonwealth/Asia.
Sales Tax = USA. get the acronym wrong, and your client's accounting software will reject your invoice. Get it right, and you get paid on time.