We are a participant in the Amazon Services LLC Associates Program, an affiliate advertising program designed to provide a means for us to earn fees by linking to Amazon.com and affiliated sites.
A lot of free money goes unclaimed during the value-added tax process in the European Union simply because people don’t know about it. Here’s a guide on how to ensure that you get money back on a VAT reclaim.
VAT Reclaim Overview: Ensure You Get ALL of Your Money Back
Traveling to Europe is my favorite travel experience. I’m a big history buff (especially World War) and there’s no place to bask in all that history and cultural experiences than Europe. I’ve been using travel hacking to explore the world for little to no cost to me.
There’s simply money that gets forgiven whether that is through work expenses or leisure. People need to know that you can easily reclaim your value-added tax on goods and services.
I’ve booked free travel through a variety of apps that help me find cheap ways to get to Europe.
If you travel to the United Kingdom, you’d probably want to know about these rebates as well.
What is the value-added tax (VAT)?
The value-added tax (VAT) is a tax that is assessed based on the increase in value of a product or service during the process of production or distribution.
The VAT will compensate a government for shared services and the infrastructure provided in a certain locality by a state.
Yeah, see the duty free stores? That is when you are traveling abroad and you are fully exempt from a VAT adder on your goods. People simply don’t know that you can reclaim the VAT paid during your travel abroad since you are not a citizen of that particular country.
For instance, if you buy an expensive watch in Switzerland that has a VAT adder on the product, you’d be able to obtain a VAT refund when you are leaving the country.
This is not typically a huge sum of money, but it can really make a difference. Plus, it’s not too hard to obtain your VAT reclaim.
The VAT reclaim is much more important when you are traveling for work and have significant expenses. At this point, it’s much more important to reclaim your value-added tax.
History of VAT Recovery Claims
Going back to the first of January in 2010, VAT recovery claims that have been invoiced inside the European Union have all been lodged electronically.
On the other hand, the paper procedure is what still applies for nations outside of the EU. In either case, the recovery of foreign VAT can still be a tedious and even complicated process.
KDS is an expense and travel management company that we contact for a number of tips that you can use to navigate this obstacle course in easier ways.
Here are a few tips for ensuring that you get your VAT reclaim.
Changing Of The Place Where The Tax Is Imposed In Terms Of Invoicing Services
Since January of 2010, the majority of intra-EC services get invoiced, and that’s exclusive of tax. Any recipients who get invoices from foreign suppliers need to self-assess the VAT using their very own VAT declarations.
If a business nevertheless does need to bear foreign VAT on a number of service purchases, it will have the opportunity to recover it.
VAT Related To Travel Expenses
All expenses that are linked to travel are still subject to VAT. Businesses need to recover the associated tax from the relevant tax authority within the nation that an applicable expense was paid in.
However, since the new directive of 2008/8/EC hasn’t harmonized deduction rights, every country still has its own set of rates and rules regarding deductibility.
For instance, in the country of France, VAT for hotel expenses can’t be recovered for employees, such as in cases of them attending conferences and trade shows or being off on assignment.
However, this is recoverable for third parties, and meals at restaurants are deductible. The rule goes quite another way in the United Kingdom, where VAT isn’t deductible for guests, but it is for employees. In Germany, it’s deductible no matter who the recipient is.
Just What Is The Economic Cost?
These expenses can’t be neglected, given how they represent a substantial economic factor that might reach up to as much as 27 percent of the total amount that gets spent abroad.
VAT rates keep increasing in Europe. At the time of writing, the average was 21 percent. Work-related travel often ranks as the third-largest expense item for businesses, following wages and IT, if production isn’t included.
Whether you’re a large group or an small-medium-enterprise (SME), it’s highly important to manage this budget optimally.
The Recovery Procedure For VAT
VAT recovery claims that take place between EU countries get lodged electronically on a business’ local tax portal which will forward all claims to the appropriate refund country.
Claims going to countries outside the EU are cases where applicant companies need to still send all the relevant original paper invoices and receipts.
The completed application form must be sent along with additional required documentation straight to the proper tax authority that is in the refund country.
Both of these procedures require detailed listings of the tax receipts and invoices to be made. If you want some more advice, try VATIT.
See Related: Benefits of Moving Abroad
Rules to Follow for the VAT Reclaim
A reimbursement request must be very precise, and in particular, the service quoted has to be correct in terms of the nature of it all, as this determines what’s deductible and what isn’t.
Make sure that all supporting documentation is compliant, given that every country has its own set of requirements regarding this matter. If need be, have a foreign supplier correct them.
In terms of ED nations, all 12 fields of the electronic form need to be completed correctly.
Also, provide each necessary supporting document, which means knowing just which documents might need to be appended. Translations are sometimes necessary, and you might have to scan some receipts depending on the VAT amount in question.
For countries outside the EU, present your claim in paper-file form including supplier invoices and the original expense claims.
The claims must be transmitted prior to the 30th of September in the following year for any nations within the EU. For nations outside of the EU, the deadline is the 30th of June.
Make sure that any foreign authorities receive your claim safely
If the authorities of that country have potential questions, answer those questions in their language and also within the determined timescale. You can avoid language barriers by using a translator app.
What Can You Do If You Suffer A Refusal?
When a foreign fiscal administration winds up refusing your claim, then the business concerned is sometimes able to submit a fresh claim that has the missing information.
In a number of cases, the issue can even be brought up before a foreign court.
What Is The Processing Timescale?
This new regulatory arrangement has cut the processing period down from half a year to just four months. Still, in practice, quite a few administrations can take a lot longer than that.
If any tax authorities wind up requesting additional information, then the timescale can get extended up to as long as eight months.
Some nations don’t even respect the stipulated timescales and can wind up taking a year or more. In the case of delay, the payment of moratory interest is accounted for in the legislation.
How Can Such VAT Recovery Get Integrated Into A Business’ Accounts?
Companies can manage VAT reimbursement per their own set of rules.
They can either break things down per the types of expense, or they can report things as exception income in a general manner.
Get Support for Claiming VAT Back
There are a number of service providers who specialize in VAT recovery.
They can offer businesses support throughout this process.
Given the experience that they bring to the table, such businesses can manage the process of recovery from start to finish. They typically know the ins and outs of how foreign tax authorities work.
See Related: How to Save Money on a Night Out
Use Expense Claim Management Solutions
It’s very advantageous to use an expense claim management system as it can give your organization total visibility over all staff expense notes and the related throughput. Implementing this kind of system can also make it easier to recover the associated VAT.
Conclusion on the VAT Reclaim Process
Clearly, if you are business a VAT reclaim is very important. You must stay organized to ensure you don’t hit any snags for claiming your VAT back. You can make your boss very upset if you let money just fall by the wayside.
All of this should give you a better idea of what to look out for.
What are some experiences that you’ve had during the VAT reclaim process? Let us know in the comments below. I’d love to hear from you.
- Top Must-Have Travel Hacks for Japan
- Best Credit Cards to Churn for Travel Hacking
- Credit Card Churning Guide: Most Important Part of Travel Hacking
Subscribe to the Millionaire Mob early retirement blog newsletter to find the best travel hacking tips, dividend growth investing, passive income ideas and more. Achieve the financially free lifestyle you’ve always wanted.
Join our community of over 3,000 mobsters seeking financial freedom. What are you waiting for?