Be Aware of Reduced VAT Rates
Completing a foreign VAT return for your employees’ business travel expenses is a challenge. Simply gathering together all the correct information and VAT receipts for your reclaim is difficult enough. Deciphering receipts that could be torn, smudged, or stained, to find out how much VAT refund you can claim is a skill in itself. Additionally, you need to read and understand VAT invoices and receipts that are written in foreign languages, use varying currencies, and might each be written in a different format.
Foreign VAT returns are made more complex because every EU member state charges VAT at a different rate. Your staff needs to keep referring to your list of VAT rates across Europe in order to make sure that your firm claims a VAT refund at the correct rate. You know that making a mistake here could be serious; if your VAT reclaim has errors, you could open up your business to an expensive VAT audit or a sizable fine.
As well as handling VAT receipts that can be difficult to read, and constantly checking foreign VAT rates, there’s one more thing you need to bear in mind: reduced VAT rates.
What are Reduced VAT Rates?
Many countries that charge VAT have one or more sets of rates for different items. As well as the standard VAT rate, they set a lower rate for certain products and services. Generally, this is either because they want to stimulate a specific industry to grow, or because the government wants to make sure that all its citizens can afford to buy basic items.
For example, Spain and Slovenia have a reduced rate on agricultural supplies and renovating private buildings, in order to support their farmers and encourage people to repair their homes. Estonia has a reduced rate of 9% for medical supplies for people with disabilities. A number of countries have reduced rates for domestic public transport, to ensure that people can afford to get around.
What is the Impact of Reduced VAT Rates?
Although there’s logic behind reduced VAT rates, it does make your VAT reclaim process more complicated. As well as looking up the VAT rates for Croatia, for example, you also need to check whether the items on the VAT receipt are classified at a reduced rate. If your company is requesting a VAT refund for your employee’s hotel room in Zagreb, you’ll have to make sure that you complete the VAT reclaim at the reduced 13% rate, rather than the standard 25% rate.
A number of countries have more than one reduced VAT rate. For example, if your employees go to a conference in Vienna, they would pay a standard VAT rate of 20% on most of their purchases, but a reduced rate of 10% on the food they buy there, and a zero 0% VAT rate on their hotel rooms.
Some of the main reduced VAT rates that you should watch out for include:
- Food and drink in Switzerland. The standard VAT rate is 7.7%, but food and drink is taxed at a rate of 2.5% – unless it is provided in a hotel, in which case it’s taxed at the standard rate.
- Alcoholic drinks in Spain. These are taxed at a standard rate of 21%, unless you buy them in a cafe, bar, or nightclub, when you’ll be charged only 10% VAT.
- Foodstuffs in France and in Italy. In France, some food has a reduced VAT rate of 10%, and some has an even more reduced rate of 5.5%. It’s a similar story in Italy, where foodstuffs could be taxed at a rate of 10%, 5%, or 4%, depending on what you buy. You’ll need to check the receipts carefully.
- Hotel accommodation. Many countries, including Croatia, Iceland, Bulgaria, Germany, Latvia, and Greece have reduced VAT rates for hotel rooms. Others, like Austria, don’t charge any VAT on hotel accommodation.
- Gluten-free food in the Czech Republic. Although most food in the Czech Republic has a reduced VAT rate of 15%, the VAT rate for gluten-free food is reduced even more, to 10%.
- Takeaway and restaurant food in Belgium. In Belgium, takeaway food carries a reduced VAT rate of 6%, but if you sit down to eat the same food in the restaurant, you’ll pay full VAT rates of 21%.
Reduced VAT rates make it even harder to complete your foreign VAT return correctly, but you can simplify it when you use the right tools. For all you need to know about filing foreign and local VAT reclaim in the EU and other countries around the world, download our eBook.