Understanding the Difference between American Sales Tax and the VAT system
When you’re a business owner, you know that every little bit helps the bottom line. You have to pay a myriad of small and larger expenses, tax payments, and travel costs, and although each one might be a minor cost, they can all add up to a lot of money leaving your business every year. That’s why it’s crucial to make the most of every deductible expense on your tax return – and your VAT reclaim.
When you submit a VAT reclaim, you can get back some of the money that your company spent on business travel, imported goods, and other expenses. But before you can start making the most of your VAT refund, it’s critical to understand the difference between refundable VAT, which can be reclaimed through a VAT return, and non-refundable sales tax.
What is VAT?
Many businesses in the USA miss out on valuable VAT reclaim opportunities in countries that permit VAT refunds, even though the United States itself doesn’t have a system of refundable VAT.
A company that’s non-resident or not registered for VAT can still end up paying significant amounts of VAT in countries that do have a VAT system in place. Here are a few examples of situations when you (as an American business) could end up paying refundable VAT:
- Your employees travel to a country within the VAT system for a conference and pay hotel, restaurant, and travel bills in that country
- You pay account payable supplier invoices to businesses in the VAT system
- You pay import VAT on goods from VAT countries
- You pay VAT on the cost of clinical trials in countries in the VAT system
As the world shrinks to a ‘global village’ and companies expand their global presence, it becomes more imperative to understand the benefits you can gain from the tax system in other countries.
How is VAT different from Sales Tax?
The USA, and a few other countries, use a system of sales tax. Sales tax is paid only by the end consumer, not any intermediate buyers and sellers. Under a sales tax system, businesses issue resale certificates to business customers who are buying goods or supplies for resale, so that they don’t need to pay any sales tax.
Under the VAT system, however, every customer along the sales chain pays VAT – suppliers, manufacturers, distributors, retailers, and end consumers – even if they are buying for resale. Business customers who resell goods and services need to keep track of the VAT they pay, so that they can claim a VAT refund. At the end of each financial year, businesses file a VAT return as part of their business tax return. The VAT return reports all input VAT, which is VAT paid by the business, and output VAT, namely VAT that customers paid to the business. If a business paid more VAT than it collected through sales, the government refunds the difference.
Make the Most of a VAT Refund
When your business operates in a country that uses the VAT system, you are likely to be entitled to a VAT refund on your business expenses, import costs, and other VAT payments. VAT reclaim helps you to cut overall costs while expanding your business around the world. To avoid getting bogged down in the complexity of VAT returns, use Way2VAT to simplify your VAT reclaim process and receive the VAT refund that you deserve.
For all the details about using an automated VAT reclaim for business for your VAT return in countries around the world, download our eBook, or schedule a demo to discuss how much your company could save with www.way2vat.com.