Can I Recover Foreign VAT on Travel?

Business travel took an enormous hit as soon as the Covid-19 pandemic started.  Depending who you ask, there are signs that business travel is showing green shoots again. Clearly it is unlikely to approach prepandemic levels for a long time, if at all.

 

While businesses identify and realise that there is value in face-to-face interaction, many have used the pandemic to reassess the costs involved in business travel and many businesses have embarked on programs aimed at reducing the cost of travel expenses.

 

The average rate of VAT in the European Union (“EU”) is just over 21%.  This is a significant chunk of the cost of a business trip.  VAT is charged on hotel accommodation, catering, entry to conferences and exhibitions and this applies regardless of whether the customer is a tourist or business traveler.  Most public transportation benefits from either reduced rates of VAT or total exemption.  The ability to recover this VAT will have a large impact on the business travel budget and the ability to recover VAT on such costs is more important now than ever.

 

Many businesses are still unaware that they may be able to recover VAT charged in an EU member state on expenses incurred by employees on business trips. Way 2 VAT offers seamless integrated VAT claim services which integrate with your existing business travel and expense management system.  A non-EU business can submit a claim under the “13th Directive” procedure to recover VAT. An EU business incurring VAT in another EU country can recover VAT under the “Cross Border EU VAT Refund” mechanism.

 

If a business wishes to claim a VAT refund incurred in the EU it is of course necessary for the cost (and VAT) to have been incurred for a business purpose.  With this in mind it is helpful if the invoices are addressed to the business making the claim. Many tax authorities allow invoices to be addressed to the employee, although the business may need to prove that the individual was an employee of the business.

 

In addition, there are several conditions which need to be fulfilled to claim a VAT refund and these apply to all countries.  These include the following:

  • The claim needs to be sent to the tax authority where the VAT was incurred.
  • The claim needs to follow the rules of that country. For example, some countries insist on paper forms and original invoices while other countries insist on digital forms.
  • The business making the claim must not be required to VAT register in that country or have any business establishment.

In addition, some countries:

  • Refuse to refund VAT if the claimant’s country does not offer similar refund rights for VAT to businesses based in that EU country.
  • Require that the claimant appoint a local tax representative.

 

All EU countries impose restrictions on the type of expenditure which qualifies for a VAT refund.  For example, most but not all countries disallow VAT recovery incurred for business entertainment.  There are also minimum amounts for claim and strict time limits for submission of claims.

 

In conclusion, there is certainly scope for recovering VAT incurred on foreign travel expenses.  The rules are complex, and each country applies their own rules and conditions.  Way 2 VAT would be delighted to discuss any questions you may have regarding VAT refund claims.