How to Reclaim International Value-Added Tax (VAT)

As VAT regulations rapidly expand, governments are increasingly demanding data that necessitates using digital or automated tools for its capture. Consequently, what once was seen as an optional investment for businesses, has now become a mandatory requirement for expense and tax management in an increasing number of countries.

Where can VAT be recovered?

VAT is recoverable in approximately 30 countries around the world. The European Union has foreign VAT refund procedures for both EU-established and non-EU established companies. Although the rules and amount of VAT that is recoverable differ by country, when these types of expenses are incurred for business, the VAT on at least part of these expenses may be recoverable:

• Hotels
• Meals 
• Car hire and taxis
• Fuel
• Meetings, events, and conferences
• Client entertainment

When do I make VAT refund claims?

Foreign VAT refund claims are often made within the year after an expense has been incurred.  Phil Flynn, senior manager for Global VAT Services at Deloitte Tax LLP, reveals there are strict time limits on making these claims.

“It’s important that businesses act quickly before the opportunity to recover the VAT is lost. Businesses wanting to recover VAT on foreign travel should acquaint themselves with the rules in the jurisdiction in question and understand the process to prepare a refund claim. For example, although the rules in the EU are somewhat harmonized, each country does approach the refund process differently,” Flynn states.

What can I do to improve my foreign VAT recovery process?

Most countries require original invoices to validate that the expense was incurred; a major sticking point for most businesses with a manual process. Obtaining valid invoices is a challenge that many businesses experience as employees aren’t always incentivized to ensure compliance. Aside from merely submitting a claim for previously incurred VAT, there’s much a business can do to make the VAT recovery process easier. An impactful action a business can take right now is to work on streamlining its expense policies and processes using one of the available technologies.

“This includes configuring your technology to capture the relevant expense data upfront, as well as implementing automated processes to capture the invoices for employee travel directly from the vendor, rather than through the employee,” Flynn recommends.

According to Deloitte Tax, here's where businesses should start when considering how to strengthen their expense policies: 

• Identify VAT-related data and requirements at the outset of a new travel and expense (T&E) process or technology implementation.
• Identify the jurisdictions or group entities that have the biggest T&E spend. 
• Work with your IT and finance teams to build these requirements into the expense process and your existing technology solution.
• Make necessary policy changes for your employees to capture and input relevant details relating to their expenses.

Don’t leave your VAT money on the table

Failing to reclaim VAT can significantly increase the cost of your travel program, especially if your travelers aren’t aware of the correct steps to successfully complete its submission:

• 42% of employee expense transactions fail to meet VAT reclaim requirements due to incorrect information or missing data, according to VATBox.
• Many errors are identified in the space of VAT reclaims on expenses.
• Submitting incorrect, incomplete, or not fully substantiated reclaim for VAT on expenses involves potential risk and inquiries by the tax authorities. 

Learn more about Concur Tax Assurance by VATBox.