All you need to know about VAT refund in EU
Why VAT refund becomes important is because a lot of people are running businesses in countries in which they are neither established nor have a VAT registration and the cost of doing so can be great. Principle suggests that some or all of this VAT should be refunded to these entrepreneurs. In today’s scenario, many such businessmen are missing refund opportunities even if the country allows for a refund. And, every business could benefit if the refund process was more efficient and automated.
Some common expenses for which nonresident companies pay VAT are when the company pays for employee travel and for the stay of employees, the service charge paid by the company to vendors, cost of company in locally buying goods and import VAT paid when goods move across borders.
Each member state has its own laws about specific items of expenditure on which VAT can be recovered. Let us take a few examples. First, let us talk about services. Usually, VAT charged on services can be recovered but since the new rules have come into effect the VAT paid on acquiring services in another EU country has already been reduced by a huge margin and these transactions should ideally be reverse charged by the person availing services in its country of establishment.
Coming to goods I’d say the laws are more complex in case of goods than in case of services and although in general the supply of goods from one member state to another is zero rated but at the same time when goods reach the other member state VAT can be reclaimed but that only happens when no other VAT relief is available. Another thing that needs to be ensured is that because of this transaction the company should not be made liable to register for VAT in another EU country. Moving further there are a few exceptions but when goods are purchased to be sold again immaterial of whether goods are re-sold within or outside the member state then the business has to register for VAT and can recover VAT after the registration. Direct VAT recovery will only be applicable when the goods will be delivered and consumed for the purpose of business within the charging member state.
Now let us look at the procedure and other ancillary details of making a claim for a VAT refund. First of all, there is an amount X which is the minimum amount that can be obtained as the refund. For annual applications or applications for the final part of a year, the amount is lesser than the amount one gets in an interim application. If some amount was omitted in an earlier interim application then the same can be incorporated in applications filed later that year. The application to get a refund should be electronically filed using a portal of the relevant tax authority within the jurisdiction in which the claimant is established by a given date of the calendar year following the refund period. The IT requirements and minor details may vary from country to country.