FOCUS. FOCUS 10 Tips to Reclaim VAT on Foreign Business Travel Expense

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1 FOCUS 10 Tips to Reclaim VAT on Foreign Business Travel Expense 3

2 10 Tips to Reclaim VAT on Foreign Business Travel Expense INTRODUCTION Since January 1st 2010, recovery claims for VAT invoiced in the European Union have been lodged electronically; however for countries outside of the European Union, the paper procedure still applies. Either way, the recovery of foreign VAT is still an extremely complicated and tedious process. We hope that the 10 points below help to add clarity to this process and enable you to better navigate this complex challenge. 2

3 1) CHANGE OF THE PLACE WHERE TAX IS IMPOSED FOR THE INVOICING OF SERVICES Since January 2010 most intra-eu services are invoiced exclusive of tax. Recipients of invoices from foreign suppliers should self-assess the VAT on their own VAT declarations. If the company nevertheless does have to bear foreign VAT on some purchases of services, it has the opportunity of recovering it. 2) VAT ON TRAVEL EXPENSES All expenses linked to travel remain subject to VAT. Companies should recover the corresponding tax from the tax authority of the country in which the expense was paid. However, as the new directive 2008/8/EC has not harmonised the deduction rights, each country has its own deductibility rules and rates. 3) WHAT IS THE ECONOMIC COST? These expenses should not be neglected as they represent a significant economic factor that can reach up to 27% of the amount spent abroad. VAT rates continue to increase in Europe with today s average being 21%. Workrelated travel is the third highest expense item for companies, when production is not included, after wages and IT. From SMEs to the large groups, optimal management of this budget is of great importance. If the company does have to bear foreign VAT on some purchases of services, it has the opportunity of recovering it. For example, in France, VAT on hotel expenses is not recoverable for employees (whether they are away on assignment or at a tradeshow or conference) whereas it is recoverable for third parties. It is also deductible for meals at restaurants. In the United Kingdom, the rule is the opposite: VAT is deductible for employees but is not for guests, and in Germany it is deductible whoever the recipient may be. 4) THE VAT RECOVERY PROCEDURE VAT recovery claims between EU countries are lodged electronically on the company s local tax portal which forwards the claims to the relevant refund country. For claims to non-eu countries the applicant company must still send the original paper receipts/invoices. 3

4 country, attach scans of all receipts where net amount exceeds threshold values (Fuel=>EUR 250; nonfuel=>eur 1000). 5 Megabyte limit must however be respected. FOCUS A completed application form, as well as any additionally required documents, directly to the tax authority in the refund country. Both procedures require a detailed listing of the invoices/tax receipts to be made. 5) RULES TO BE FOLLOWED For non-eu countries: present the claim in the form of a paper file consisting of a completed application form including invoice listing, certificate of status, completed questionnaire as required, original invoices/receipts which have been numbered in same order as listing. Be very precise in the reimbursement request and in particular understand the service quoted on the invoice to make a correct entry of the nature of the services, which determines whether it is deductible. EU to EU claims must be submitted by 30 September the year following the year the expense was incurred. For claims to non-eu countries the deadline is generally 30 June the following year although there are some exceptions. Check the compliance of the invoices, as each country has its own requirements on this matter; if necessary have the foreign supplier Ensure that the foreign authorities have safely received the claim before the deadline. correct them, for example if a hotel invoice has been issued in the traveller s name and not the company name. Reply to any questions from the authorities in the language of the country and within the timescale determined. For European Union countries: for each invoice correctly complete all the 12 data fields in the electronic form, be aware which documents need to be included (translations may be necessary) and, if required by refund 4

5 6) WHAT SHOULD BE DONE IN THE EVENT OF A REFUSAL? When the foreign fiscal administration refuses the claim, the company concerned can sometimes submit a new claim with the missing information and even, in some cases, bring the issue before foreign courts. In cases where the tax authorities deem that VAT has been incorrectly charged, the supplier should be contacted to arrange for a credit note. reach up to a year or two. In the event of a delay, payment of moratory interest is provided for in the EU legislation. 8) HOW CAN THIS VAT RECOVERY BE INTEGRATED INTO THE COMPANY S ACCOUNTS? Companies manage VAT reimbursement according to their own rules: broken down according to the type of expense or reported in a general manner as exceptional income. An expense claim management system could be extremely beneficial, giving complete visibility of all expense notes and related throughput. 7) WHAT IS THE TIMESCALE FOR PROCESSING? The new regulatory arrangement has reduced the official processing period from six to four months for EU to EU claims; for non-eu claims the previous 6 months processing time remains. However, in practice, many administrations still take much longer than this. If the tax authorities request additional information, the timescale can be extended up to 8 months. Some countries do not respect these timescales and they can 9) RECEIVE SUPPORT Some service providers who are specialists in VAT recovery offer support for companies going through the process. With experience behind them, these companies can manage the recovery process from beginning to end and generally will know all the workings of the different foreign tax authorities. 10) UTILISE EXPENSE CLAIM MANAGEMENT SOLUTIONS An expense claim management system could be extremely beneficial, giving organisations complete visibility of all staff expense notes and of the related throughput. Implementations of such a system would also facilitate the recovery of the related VAT if for example country where the expense is incurred is tracked as well as type of expense. 5

6 Learn more about TVA Conseil TVA Conseil is responsible for France, the United Kingdom, Ireland, Belgium, Holland and Luxemburg Visit the website at or contact TVA Conseil. France : contact@tvaconseil.com 6