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According to a report published by the European Commission, tax administrations receive about 5.5 million refund requests annually, with a total value of €150 billion. The average value of a claim is €28,000.
When your company incurs VAT at home or abroad, questions will undoubtedly be raised about recovering this VAT:
All these practical questions relate to the refund of VAT borne by your company abroad. The rules for VAT refunds are set out in Articles 167 to 192 of the VAT Directive, while the practicalities are unfortunately left partly to the discretion of each Member State.
How do I get the VAT back ?
You will need to contact the local tax authorities. There are several methods of reclaiming foreign VAT. The practicalities of reclaiming foreign VAT will differ depending on whether or not your business is established in Europe and/or is identified for VAT purposes in the country in question:
- If your company has a VAT number in the country, it will have to apply for a refund in the form and within the time limits required by the local regulations. This application can be made via the VAT return itself (e.g. Belgium, Denmark) or by submitting a specific form (e.g. France).
- If your company is established in a European country and does not have a VAT number in that country, it will have to apply for a VAT refund electronically from its country of residence in the form and within the time limits required by the Directive 2008/9. According to a report published by the European Commission, tax administrations receive around 700,000 applications annually. The electronic procedure may seem simple enough at first glance. But beware because some tax administrations (e.g. Germany, Czech Republic, Romania, etc.) do not like to refund VAT to foreign companies and will want to use any means to reject your request. It is not for nothing that many disputes end up before the Court of Justice on this subject.
- If your business is based outside Europe and does not have a VAT number in the country, it will only be able to reclaim VAT if that country has a reciprocal agreement with your country of residence. The application for a refund will also have to be made by a local tax representative. In some countries (e.g. Spain) it is almost impossible to reclaim VAT when your business is located outside the EU.
Is foreign VAT recoverable on all expenses ?
In principle, VAT is recoverable on all expenses that are related to your business activity. However, the VAT Directive gives Member States some flexibility to exclude or limit the recovery of VAT on certain specific expenses. The most common are the following :
- restaurant expenses
- hotel expenses
- vehicle expenses
- entertainment expenses.
It is therefore important to check whether or not the VAT is eligible for refund in the foreign country before applying for a refund. If this is not the case, there is no point in wasting your time. You already know the answer to that question !
How easy is it to recover VAT abroad ?
Like the deduction right, the right to a refund of foreign VAT is a fundamental principle of the common VAT system, which aims to relieve the entrepreneur entirely of the burden of VAT due or paid in connection with all his economic activities. The Court of Justice has been reiterating this principle for more than thirty years.
These numerous court cases demonstrate, in an absurd way, that the issue of VAT refunds is often a source of dispute with the tax authorities. A misunderstanding of the refund procedures can lead to non-recovery of VAT.
In practice, recovering VAT abroad is not as easy as it seems.
Need to recover VAT abroad? Call on our VAT experts
Do you want to make sure you get effective VAT refunds abroad?
Our firm can help you. We are familiar with all the refund procedures and know how to avoid administrative pitfalls.
How does it work in practice?
It's quite simple for you: you give us your purchase invoices with foreign VAT and we take care of everything else:
- We make sure that the invoice has no defects that would block the refund
- We determine the correct method of refund based on various parameters (amount, deadline, etc.)
- We submit the refund application and answer enquiries from local tax authorities
- We follow up on your file until the refund is actually paid into your bank account.
In short, we provide complete and tailor-made support to guarantee you a foreign VAT refund.