Is Sales Tax in Asia GST or VAT – and Can You Reclaim It?
Successfully submitting a VAT return can sometimes feel like completing an obstacle course. The VAT refund process requires you to keep track of every VAT receipt, and calculate the amount of VAT that you’re reclaiming correctly. You’ll have to juggle multiple different VAT refund regulations and requirements from different countries in order to complete a VAT reclaim.
Businesses that submit VAT returns are left pouring over VAT documents in different languages and currencies, trying to decipher VAT receipts with varied formatting in order to calculate the right amount of VAT to reclaim. What makes it even more challenging is that many VAT receipts are for relatively small amounts, making businesses wonder whether it’s really worth the hassle to request a VAT reclaim. It’s not very surprising that businesses leave over £15.3 billion of VAT refunds on the table.
But VAT reclaim gets exponentially more complicated when business travel takes your employees to Asia. While the EU has a clear VAT refund system that includes all the member states, that’s not the case in Asia.
GST vs. VAT
Most Asian countries do charge a sales tax, but the type of sales tax is not always clear. Some charge GST, while others charge VAT. To make it more complicated, these taxes often go by different names in local languages.
Although GST and VAT are both sales taxes, there are important differences between them. GST stands for Goods and Services Tax. It is:
- Levied on the consumption of both goods and services
- Only paid by the final consumer
- Not reclaimable by business customers
VAT, or value-added tax, is:
- Levied on the production and distribution of goods and services
- Paid by every buyer in the supply chain
- Reclaimable by business customers
For local customers, GST is vastly preferable to VAT. VAT risks causing a ‘cascading effect’, where the price paid by each customer includes the price of goods + tax on the price of goods + the tax paid by the previous buyer. With GST, the end customer only pays tax on the price of goods.
However, for business travellers to Asia (and their HR departments back at home), GST causes a great deal of difficulty because it can’t be reclaimed using a VAT return.
Do Asian Countries Charge VAT or GST?
Unlike in the EU, there is no single system in operation across Asia. Some countries, such as India, charge GST. Others, like Taiwan and South Korea, charge VAT, while Japan charges its own tax called Japan Consumption Tax (JCT), which is similar to VAT.
Standard sales tax rates in Asia are:
- China – 6-13% VAT
- India – 18% GST
- Japan – 8% JCT
- Singapore – 7% GST
- South Korea – 10% VAT
- Taiwan – 5% VAT
Can you Reclaim GST or VAT in Asia?
The critical question for businesses with employees who travel to Asia is whether or not your organization can get a refund on the sales tax they pay. The short answer is that in some countries, you can – but it’s not as easy as making VAT returns in Europe.
In Taiwan, Japan, South Korea, and a number of other Asian countries, tax reclaim for business travellers can only be made on B2B transactions. That means that you need to register your business in that country to apply for a tax reclaim there. It’s not enough for your employees to visit these countries on business trips, and save their tax receipts from business travel expenses. You’ll have to carry out tax-applicable business in each one of those countries, which means setting up a local business, registering to charge tax to customers, and carrying out business-related transactions, before you can submit a tax return.
Different sales tax formats and varying rules about requesting a refund make your foreign tax return even more complicated, but you can make it easier when you use the right tools. For all you need to know about filing foreign and local tax reclaim in countries in Asia and around the world, download our eBook.