People often confuse a business VAT refund and a personal VAT refund. Many tourists have received a VAT refund at the airport after a vacation. However, this is limited to purchased goods on the trip and the merchandise must be displayed at the airport. But are you aware that there is a way to get a refund on your hotel, entertainment and other expenses from your trip? Well, David Zulberg at Global VaTax points out that it depends on the nature of your expenses. Let’s take a better look:
What is the difference between reclaiming a business VAT refund and a personal VAT refund?
Tourists may apply for a VAT refund on gifts and merchandise purchased when taking back the items to their original country. The refund should be requested at the last port before departure from the international country.
Individuals who are not business entities are not entitled to a VAT refund incurred on services, such as hotel, meals, professional fees and car rental. This refund opportunity is only available to corporate entities.
Why is there a difference between business VAT reclaim and an individual VAT refund?
In order to encourage international trade, European legislation was approved to enable businesses to recover the VAT on expenses that were incurred internationally. Companies may reclaim the VAT on many expenses like:
- Exhibition and conference fees
- Business entertainment
- Meals
- Hotel costs
- Telecommunications
- Marketing and legal costs
- Transport costs
- Drop-shipping
Naturally, this incentive does not apply to individuals. Therefore, individuals are limited to a VAT refund on gifts and merchandise purchased, as long as it is done at the last port before departure from the international country.
The Business VAT refund process
A European Commission report found that 80 percent of companies don’t reclaim VAT expenses. Some of the reasons companies don’t reclaim include:
The process is complicated. Contacting the necessary VAT authorities where the expense was incurred is challenging. Have you ever dealt with a government office? In many cases, you also require a government agent representative, which doesn’t deal with companies. In addition, differing time zones and language barriers make it even harder. Then there is the matter of retrieving and sorting through hundreds and sometimes thousands of documents and expense line items. Getting around these challenges is very expensive, time-consuming and difficult. Financial experts suggest that the costs incurred to process the claim often outweigh the benefits.
Some of the complexities compared to a local VAT return
The fundamental differences between a local VAT return as compared to 8th and 13th VAT reclaim procedures, is that the 8th and 13th claims procedures do not work on a trust basis. This requires the claimant to provide comprehensive documentation in standard formats as well as original invoices, certificates of status and filing of claims under strict deadlines.
Some of the complexities encountered for a business VAT refund are as follows:
- The VAT refund authorities have a face vet procedure, which means that incomplete claims are rejected outright without being deemed to be lodged. This can cause deadlines to be missed.
- The VAT refund authorities have filing deadlines which are never extended. Invoices that are not submitted within the valid time frame are never refunded.
- The VAT refund authorities require standard format certificates of status for every claimant which must be issued by a competent tax authority of the claimant. This certificate must be original and is only valid for one year from the date of issue.
- The VAT refund authorities require original authorization from every claimant in order for a third party to submit claims on their behalf.
How to simplify the corporate VAT refund process
Global VaTax provides a business VAT refund service from start to finish, with no upfront fees. If the VAT refund is not successful, it won’t cost you a penny. They simply keep a small percentage of a successful refund.
They also have an advanced cloud application which extracts all your travel and expenses, including accounts payable costs, in a matter of a few minutes. All the document sorting and submission is done by the company. In many cases, the client won’t have to spend more than an hour or two from the start until the VAT refund is accomplished.
This is why even Fortune 500 companies use their services. It is just not worth hiring an internal team, and with the lack of international government tax agent connections, the process is stalled anyway.
There are deadlines in order to receive a VAT refund from previous years. So, don’t procrastinate the process. Once the deadline has passed, the 15-25 percent potential refund on international expenses is lost forever.