Just as the US has Sales tax, several countries and regions around the world have Value-Added Tax, or VAT. Governments charge VAT on goods as they move through the value chain. VAT returns.
When American companies are charged these taxes, they are entitled to recover them. This means sizeable refunds can be received from overseas transactions when VAT was charged. These refunds, known as “business VAT reclaims” apply in Japan, Australia, Europe and Russia. The local tax authorities accept official invoices and tax forms and provide refunds after verification. Different rules apply to countries within the European Union and those outside of it.
Importance of Reclaiming VAT
The importance of business VAT reclaim is often overlooked for a number of reasons. Companies are sometimes simply not aware that this route is available to them. They often get caught up in the bureaucracy in countries with VAT returns and are unable to navigate the local system. Whatever the reason may be, companies often miss out the chance to get back as much as 27% of their business expenses.
What is VAT?
VAT is a tax on all services and goods that the consumer pays on the entirety of their purchases. VAT differs across borders within the EU which makes it a lot more difficult to calculate and only adds to the bureaucratic impediments facing businesses filing for a VAT return.
Keeping Track of Business VAT Reclaim
The procedure for applying for business VAT reclaim requires meticulous attention to detail. Preserving original invoices enables you to receive VAT returns. Documentation of business transaction needs to be translated into the language of the country where you are working. You should be aware of the constantly-changing exchange rate between the local currency and the currency you want the VAT return to be provided in.
Keeping Track of Company Invoices and other Documents
Keep track of all the company invoices – both for expenses and purchases. Failure to turn in the original invoices, may result in you not being able to receive the business VAT reclaim. Your company should also maintain copies of all its invoices for future reference and for the purpose of annual government tax inspections.
Claiming VAT on Travel and Expenses
VAT is charged on all travel expenses including air travel, taxis and public transportation, hotels stays and restaurant meals, as well as business meetings and conferences. Getting VAT returns on these types of expenses can prove tricky since different countries charge for different types of expenses. For example, some EU states offer deductions on VAT for business meals for both company employees and guests, while the UK only offers deductions for employees. Claiming VAT is confusing, but your business will profit greatly if effort is made to collect this refund.
Possible Solution to the Problem of VAT Bureaucracy
One possible solution to the issue of the mass amounts of bureaucracy and lack of transparency that comes with the business VAT reclaim process is VAT automation. Automatic VAT return technology would streamline the process. Automation would allow employees to enter their invoices into a central computer. This would reduce the time it takes to come up with all the accounting information. Such a change would ensure transparency and preciseness that is otherwise missing.