What Makes Cross-Border VAT Refunds So Complex
There’s always a lot to organise when your employees travel for business. As well as booking accommodation, making flight arrangements, and setting up meetings, your business will also want to keep on top of your local VAT reclaim or foreign VAT return.
Requesting VAT refunds is something that all businesses with international travellers should do as a matter of course, but as much as £15 billion of VAT refunds are left unclaimed every year! It’s not hard, though, to understand why foreign VAT return can go unclaimed: submitting a foreign VAT reclaim is so complicated, many businesses would rather lose out on their foreign VAT refund than have to jump through “the hoops” of foreign VAT reclaim. A local VAT return is far simpler to manage.
What’s more, many businesses are dealing with just small amounts of foreign and local VAT each time. Navigating a confusing foreign VAT reclaim system for relatively small sums simply doesn’t seem worth the effort. But in business, small sums add up.
If you’ve been avoiding making a foreign VAT reclaim because you’re confused about the process, read this guide to understand just why foreign VAT refunds are so complicated.
1. There are many parties involved
When it comes to your businesses’ local VAT reclaim, your company usually has only to deal with one other party – your home country’s VAT authority. In the UK, all local VAT reclaims online through HMRC.
But if you’re requesting a foreign tax refund, your business has to deal with many other parties. The company needs to send the VAT return to the VAT authority of your Member State of Establishment (MSE) – the country where your business is registered.
Then, the MSE has to send your VAT reclaim to the Member State of Refund (MSR), which is the country where your company paid the foreign VAT. You’ll have to wait patiently for each tax authority to communicate with the other one, since you, as the VAT Manager, can’t play an active role in this part of the process. It’s inevitable that your company’s VAT reclaim will take longer to be processed when there are two, three, or more parties involved.
2. VAT refund laws are different in each country
The complexity of cross-border VAT refunds doesn’t end with multiple parties. Different countries have different laws regarding VAT returns. For example, the standards for VAT receipts vary in different countries, so you’ll have to check that each VAT receipt is in the right format for that particular country.
Different countries also accept different types of business travel expenses for a VAT refund. For example, some services are accepted for VAT refund in one country, but not in another. This means that your company cannot group all its foreign VAT receipts for business travel expenses together into one VAT refund request.
3. Your company’s foreign VAT return involves a mix of languages and currencies
A cross-border VAT return involves a variety of different languages and currencies, which only adds to the complexity of foreign VAT reclaim. It can be confusing to use a portal that’s written primarily in another language, even if it’s been translated.
Converting between currencies makes it all too easy to lose track of your sums and mix up your numbers, creating errors in the VAT reclaim.
EU VAT Reforms
Because of the complexity of foreign VAT returns, the EU is overhauling the entire VAT refund system to simplify the process of claiming VAT refunds between EU member states. Eventually, businesses will submit their cross-border VAT reclaim in the same way that they submit requests for a local VAT refund, without preparing a list of cross-border transactions.
As part of these reforms, companies that make cross-border sales can handle their foreign VAT returns through a ‘one stop shop’. This is a single portal that’s run in your own language, using the same process as your local VAT reclaim portal.
Although cross-border VAT returns are still complex, you can make them easier when you use the right tools. For all the details about filing successful foreign VAT returns in the EU and other countries around the world, download our eBook.