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VAT Refund guide for companies

€20 billion.
That’s the amount of money that gets left on the table every year in unclaimed foreign VAT.

Needless to say, €20 billion is an insane amount of money for companies to leave behind (essentially donating it to the EU’s treasury). So why don’t the companies reclaim the money that they’re entitled to?

Well, it’s not quite so simple. While your company could certainly stand to gain a lot of extra revenue by successfully claiming the foreign VAT it is entitled to, the reclaiming process itself is actually very demanding; it requires time, expertise, and a whole lot of bureaucracy.  

But first, let’s take a look at how does it work?


Why Am I Entitled to a Refund?

If you are not a resident of the EU, then you are eligible to claim a VAT refund on certain expenses incurred in the EU; whether or not you can claim a refund on the expense depends on whether or not the expense is for business purposes.

If you are a business owner, almost any expense (occurring in the EU) is eligible for a reclaim, as long as every receipt and invoice is compliant with the local tax legislation.

For personal expenses, however, the list of refund-eligible expenses gets shorter. Accommodation, food, and transport are not covered; the only personal tax you can get refunded is from money spent on merchandise (clothes, electronics etc.)

Guide to Claiming VAT

 

If your business is operating in countries in which it is not established or VAT-registered, it will inevitably incur quite a lot of tax; naturally, you will want to reclaim as much of that tax as possible.

Some of the more common expenses your business could incur are: 

• Travel and accommodation  

• Local service charges

• Import VAT on goods moved across borders

• Local purchases of goods

For an internationally operating business, the VAT paid on these expenses will add up to quite a significant amount throughout the year.

For a successful reclaim, it is imperative that the correct process is followed; any improper procedures could lead to ‘noncompliance’, which effectively means that the VAT on that particular expense is forfeited.  

First, let’s take a look at what expenses are not considered eligible for a reclaim.  

What you can’t reclaim:

• Anything that’s exclusively for personal use

• Business entertainment costs

• Costs incurred by your business for producing VAT-exempt supplies

• Business assets transferred to you as a going concern.

Once you’ve sorted out which of your business expenses are eligible for a reclaim, you will need to know a few details that are intrinsic to the reclaim process.

 

Claim Details: Currencies, Time Limits, and Minimum Amounts

 

There are a couple of things you need to keep in mind when preparing to lodge a VAT reclaim.

Firstly, each country in the EU has its own values for the minimum refund amount; there is an annual minimum, and an interim minimum. The annual value refers to claims made for the whole year, while the interim value refers to claims of more than 3 months but less than a year. The majority of countries have €50 as the annual minimum, and €400 as the interim minimum.

Furthermore, when lodging a claim, you must use the national currency of the country in which the expense was incurred. If your invoices show the amounts in Euro (as is likely), you must use the exchange rate as it was on the date of the invoice. 

Finally, there is a time limit on when claims can be lodged; you must claim before 30 September of the calendar year following the one in which you were charged VAT. Your claims can not be for longer than a calendar year, nor can they be less than 3 months (unless that’s all that’s left of the calendar year).

 

Filing Procedure

 

Once you’re aware of the details and confident of which invoices are eligible for a VAT reclaim, you can begin the claiming procedure (assuming you have all of the necessary invoices and receipts, and that they’re compliant). 

The application must be submitted electronically (no later than 30 September) to the relevant tax authorities of the country in which the original expense was incurred.

Once the claim is has been received and processed by the Tax authorities, one of three possible outcomes will occur:

• The claim will be accepted, and the reclaimed amount will be paid electronically

• The claim will be rejected, either in whole or in part. The necessary assessment will be issued to the claimant

• Additional documentation or information will be requested to finish processing the claim.

A deadline will be given for the submission of this extra documentation

Inherent Challenges

Carrying out a successful VAT reclaim is certainly not a trivial process. Here are a few reasons why:

Variation in legislation from country to country

Tax legislation varies from country to country in the EU. Each country’s tax office approaches VAT in a different manner, meaning that the relevant practices and recovery rules will vary.

For you, this means that the more countries your business operates in, the more complicated the process will get.  

Compliance with Invoices and Financial Records


Each country enforces its tax regulations very strictly; this means that, when attempting to lodge a VAT reclaim, every invoice from the relevant period will be audited.

For this reason, it is important that every single receipt contains all of the required information; otherwise the claim could be lost.

High Rate of Claim Rejection

The incredibly thorough auditing process undertaken by tax offices means that, overall, the rate of unsuccessful claims is very high.

In fact, the average company will have a non-compliance rate of 60-70%, meaning that a significant portion of the claim is lost; this is due to receipts and invoices not containing the necessary information to comply with local tax laws (for instance, the receipt being in the name of the employee, rather than the name of the company).

 

VAT Return Uses Resources

Even if you track every receipt diligently to ensure compliance, the whole process of reclaiming your foreign VAT can take a significant amount of time and effort, not to mention that your staff will need a lot of specialised expertise to ensure that the process goes down without a hitch. 

How Rydoo can help you automate the process

At the end of the day, you don’t want you or your staff to be bogged down with bureaucratic tedium. Fortunately, you can use Rydoo to not only track all of your business expenses in a way that is entirely compliant with the legislation, but to also carry out the foreign VAT return procedure on your behalf.

 

Digital Invoices – Automatic Compliance


Our app, Rydoo, records and digitizes all of your receipts and invoices throughout the year.

During the year you will have a nice dashboard where you can monitor the amount that can be reclaimed. 

At the end of the financial year, all the data is compiled and processed by our partners, who will then proceed to successfully claim all of the foreign VAT that you are entitled to.  

This is beneficial to you in multiple ways. Not only do you save a significant amount of time and effort, but you ensure that not a single one of your business invoices will end up being non-compliant.

By saving invoices that would otherwise be lost, and not leaving any money on the table, Rydoo will effectively be making you money – in many cases, much more money than the actual subscription fee for the app!

 

 

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