What Makes Cross-Border VAT\GST 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\GST reclaim or foreign VAT\GST return.

Requesting VAT\GST refunds is something that all businesses with international travellers should do as a matter of course, but as much as £15 billion of VAT\GST refunds are left unclaimed every year! It’s not hard, though, to understand why foreign VAT\GST return can go unclaimed: submitting a foreign VAT\GST reclaim is so complicated, many businesses would rather lose out on their foreign VAT\GST refund than have to jump through “the hoops” of foreign VAT\GST reclaim. A local VAT\GST return is far simpler to manage.

What’s more, many businesses are dealing with just small amounts of foreign and local VAT\GST each time. Navigating a confusing foreign VAT\GST 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\GST reclaim because you’re confused about the process, read this guide to understand just why foreign VAT\GST refunds are so complicated.

1. There are many parties involved

When it comes to your businesses’ local VAT\GST reclaim, your company usually has only to deal with one other party – your home country’s VAT\GST authority. In the UK, all local VAT\GST 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\GST return to the VAT\GST authority of your Member State of Establishment (MSE) – the country where your business is registered.

Then, the MSE has to send your VAT\GST reclaim to the Member State of Refund (MSR), which is the country where your company paid the foreign VAT\GST. You’ll have to wait patiently for each tax authority to communicate with the other one, since you, as the VAT\GST Manager, can’t play an active role in this part of the process. It’s inevitable that your company’s VAT\GST reclaim will take longer to be processed when there are two, three, or more parties involved.

2. VAT\GST refund laws are different in each country

The complexity of cross-border VAT\GST refunds doesn’t end with multiple parties. Different countries have different laws regarding VAT\GST returns. For example, the standards for VAT\GST receipts vary in different countries, so you’ll have to check that each VAT\GST receipt is in the right format for that particular country.

Different countries also accept different types of business travel expenses for a VAT\GST refund. For example, some services are accepted for VAT\GST refund in one country, but not in another. This means that your company cannot group all its foreign VAT\GST receipts for business travel expenses together into one VAT\GST refund request.

3.  Your company’s foreign VAT\GST return involves a mix of languages and currencies

A cross-border VAT\GST return involves a variety of different languages and currencies, which only adds to the complexity of foreign VAT\GST 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\GST reclaim.

EU VAT\GST Reforms

Because of the complexity of foreign VAT\GST returns, the EU is overhauling the entire VAT\GST refund system to simplify the process of claiming VAT\GST refunds between EU member states. Eventually, businesses will submit their cross-border VAT\GST reclaim in the same way that they submit requests for a local VAT\GST 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\GST 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\GST reclaim portal.

Although cross-border VAT\GST returns are still complex, you can make them easier when you use the right tools. For all the details about filing successful foreign VAT\GST returns in the EU and other countries around the world, download our eBook.

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