5 Most Common Mistakes to Avoid While Claiming Foreign VAT
August 22, 2017
Value added tax (VAT) is a multi-stage tax levied on goods and services, with the final burden being paid by the consumer. The amount of VAT levied differs from country to country and product to product and is meant for the residents of that country. As a visitor to a foreign country, you can get a refund on the VAT you’ve paid on goods and services while visiting that country, especially on business-related expenses.
However, it has been noticed that a number of companies who send their employees abroad on business, don’t apply for refunds or alternatively submit only a limited number of claims. A company spends large amounts on travel and expenses when their representatives travel abroad. By not claiming a refund or making a mistake while claiming, they join the vast number of businesses who haven’t claimed VAT and add to the millions lying unclaimed on the table. If your company makes legitimate claims and follows the right process, it can add a considerable amount to its bottom line, which makes a vast difference in the long run.
Besides ignorance, there are a number of mistakes businesses make while claiming for refunds, as a result their claims are not accepted. Let’s look at some of the common mistakes to avoid when claiming VAT for business travel to a foreign country.
Failure To Retain Payment Receipts/Invoices:
The provisions relating to claiming of VAT refund are very clear – the claimant has to show documentary evidence of travel and other expenses. A failsafe method – attach evidence of travel and expenses in the form of travel itinerary, expenses receipts, invoices for goods etc.
Holding onto receipts when traveling, especially to a number of countries can be a mammoth task and there if every likelihood of you misplacing/losing a few of them. This is more so in cases of fuel or internal travel, public or by car expenses. In such a case, what can you do? Well, all is not lost – there are ways and benchmarked rates by which you can make a claim, however, the effort and procedures are lengthy and cumbersome. In cases of fuel bills, if you lose your receipts, you cannot apply for a refund! Your best bet – hold on to all your receipts and invoices.
Reclaiming VAT Twice on the Same Purchases or Paying the Wrong VAT Rate:
There are instances when suppliers issue payment requests and subsequently send the VAT invoices after you have already paid them. In case you don’t realize the difference between the two documents, you are likely to submit a VAT claim for both documents, although it is only one expense. It is important to note that a payment request is not a valid tax invoice. Another issue is that although suppliers would charge VAT at the appropriate rate, there are instances when this has not been the case. The result is that your VAT refund claim is not accepted.
Working With Companies Who Do Not Provide Transparency Or Lack Expertise:
If your company is working with a third party to reclaim foreign VATr who doesn’t provide complete transparency to the VAT refund process, you may be losing a great deal of money.
With no transparency, there is no guarantee that your partners have collected VAT refunds on your behalf. Sometimes companies could hold your reclaimed amounts for a long period of time before releasing it to you. How can you circumvent such a situation – have your provider give you a complete visibility into every step and inform you when the money is released by the authorities.
Another pitfall when working with partners is that all VAT providers are not equal and their expertise in local rules, regulations, and processes required for claiming VAT refund too differ. In such a situation, a provider with limited or substandard expertise could result in your missing the chance to claim a VAT refund on behalf of your business.
Filing For a Claim with Non-compliant Invoices
When submitting a claim, there is a certain format that is expected of the invoices. Unfortunately, a lot of companies are not aware of this and end up submitting claims with invoices in the wrong format. Very often, invoices have to be sent back to vendors to get them changed into the required format. Avoid this back and forth by ensuring your invoices are submitted in the correct format, to begin with. At CB VAT, we take care of the nitty gritty, so that you don’t have to.
Combining Expenses Incurred For Personal As Well As Business:
The law is very clear – refund of VAT can only be claimed for expenses made for business. Let’s take the example of John, a consultant based in the US, who traveled to France for a conference. Since he was going to France for the first time, he decided to stay on and take in the sights. He, therefore, extends his trip by a couple of days. In this case, his company can claim a refund of VAT on his travel expenses as well as expenses for the duration of the conference. However, if they claim a refund of VAT for the two additional days John stays on – their claim will not be entertained.
Similarly, although there is a fine line between business-related expenses and personal expenses, especially when it comes to bills at restaurants, hotels etc., it is very important to present only bills used for business purposes. In our example, if during the conference, John decides to invite a couple of his acquaintances to join him for a meal at his hotel, and then presents the full bill for a refund of VAT, he will be infringing on the rules of VAT Refund Claim.
Consulting a specialist in VAT recovery will ensure that you have all the support you need to manage your refund process from beginning to end. Recover all the refundable amounts you are eligible for and add to your company’s profitability.