Tit for Tat: Which Countries Require Reciprocal VAT Refund Policies?

Filing a VAT return on your employees’ business travel expenses in the EU can be challenging for companies in non-EU countries. Although within the EU, reciprocity is automatic, that’s absolutely not the case outside the European Union.

For non-EU companies filing for VAT returns with EU countries (or vice-versa), for a start, you have to decipher your employees’ VAT receipts for a VAT refund, even if they are crumpled, torn, stained or incomplete. Then, you need to understand the language and formatting, which can be different for each EU country, to identify exactly how much VAT to enter onto your reclaim form.

Once you’ve got an accurate record of all the VAT amounts, you need to check the reciprocity agreements for every EU country. Under the EU 13th directive, each EU member state decides for itself whether it needs a reciprocity agreement with each other member state, and under which circumstances.

What is a reciprocity agreement?

A reciprocity agreement is a deal to reciprocate on VAT refunds between two countries. For each EU country, you’ll need to check:

  • If the other country requires reciprocity for a VAT refund. If it doesn’t require reciprocity, like Austria or Denmark, then you can go ahead with your VAT reclaim without worrying about it.
  • If a country requires reciprocity, you need to see if it has a reciprocal arrangement with your country of business.

If a country requires reciprocity, but doesn’t have a reciprocal arrangement with your country, then you won’t be able to make a VAT reclaim.

Generally, every EU state has a reciprocity agreement with every other EU member state. Things really get complicated, though, when your business is in a non-EU member state. That’s when you’re likely to need a reciprocity agreement.

Which countries require a reciprocity agreement?

Twenty EU countries, including Germany, Poland, and the UK, require reciprocity for VAT reclaim, but each one sets its own rules. For example, Germany requires reciprocity, and it has a reciprocity agreement with more than 50 countries. But Slovenia and Greece only have a reciprocity agreement with two countries; Italy has a reciprocal agreement with three.

As a result, you need to check reciprocity agreements for every foreign VAT return in every country. If your country has a reciprocity agreement with Germany, you can file your German VAT reclaim. But you can’t assume that your country also must have a reciprocity agreement with Italy, for example. The reciprocity arrangement there might be completely different.

To make your VAT reclaim a little harder, some countries that demand reciprocity don’t have a clear list of which countries have a reciprocal agreement with it. If your employee travels to Estonia, Norway, or Iceland, for example, you’ll have to check your reciprocal status with your own VAT authorities to be certain your claim will be valid.

Does a reciprocity agreement apply to every purchase in that country?

When you’re submitting a VAT reclaim for goods and services bought in a country like Spain or Portugal, which don’t have blanket rules about reciprocity agreements, you’ll have to check the requirements for every business travel expense.

In Spain, reciprocity agreements only apply to certain types of products or services. Imagine your business is in Norway. Norway has a reciprocity agreement with Spain, so you’d assume that you can submit a VAT refund on all business travel expenses to that country.

Not so fast.

If your employee has a business meeting in a restaurant, you won’t be able to file a VAT reclaim on that expense, even though you can request a VAT refund for their laundry bill on the same trip.

What’s more, there are some situations where Spain accepts VAT returns from businesses in countries that don’t have a reciprocity agreement. So if your business is in Sweden, which doesn’t have a reciprocity agreement with Spain, but your employee travelled to Spain for a conference, and paid VAT on their hotel room and taxi ride from the airport, your business can still request a VAT refund for that VAT.

Making a VAT return is particularly challenging if you’re doing it in Portugal. Portugal assesses every VAT reclaim on a case by case basis. You can’t assume that your company will get a VAT refund for the same type of goods and services as another business in your building. You can’t even expect that your VAT return will be accepted this year, just because it was accepted last year. VAT refunds with Portugal are very unpredictable.

Additionally, you’ll need to get a local Certificate of Taxable Status for your VAT return with some countries, like Norway, while other places (like Holland) only require a Certificate of Taxable Status but don’t need reciprocity. Finally, there are some countries, such as Switzerland, where you have to appoint a local fiscal representative to handle your VAT returns in that country.

The complicated reciprocity agreements can make foreign VAT returns into a minefield, but you can handle it as long as you use the right tools. For all the details about filing successful VAT returns in the EU and other countries around the world, download our eBook.

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