Businesses operating in countries where they are not established or VAT-registered still incur significant amounts of VAT on purchases made in those countries. Some of the most common expenses for which non-resident companies incur VAT include co-location costs, import VAT, local purchases of demo goods, locally purchased spare parts and even (incorrectly billed) service charges from foreign vendors. In principle, non-resident businesses are eligible to recover some or all of the VAT incurred spend, representing a significant opportunity to reduce the tax burden.
The sheer complexity of uncovering already booked invoices from supplies activities abroad that do contain recoverable foreign VAT is challenging to even the most robust AP organizations. And even when identified, updated and expert knowledge of the complex rules, regulations and best practices in every country is required to establish first whether the VAT was charged correctly and secondly whether the VAT is recoverable. Until now, this has been a time-consuming, and highly manual process.
Don’t write off Foreign AP VAT recovery just yet!
Without noticing, foreign VAT may still enter your finance stream, even when working with a tax determination solution or an automated internal intercompany invoicing system. Together, these foreign AP VAT challenges have caused more than one AP department to simply throw up their hands in the face of foreign AP VAT recovery. “Maybe easier, to just write off this opportunity?”
Yet foreign AP VAT is not just about recovering money, it’s about your organization’s indirect taxation strategy, as well as your team’s impact on company policy and compliance. By leading the drive to overcome these challenges, AP teams can recover otherwise lost VAT and markedly impact the organization’s bottom line. By owning this process, the AP team will benefit from the enhanced control and visibility capabilities of VAT automation and technology.
A few unrecovered invoices, but a big impact on the bottom line
Challenge #1 I Incorrect Tax Code Assignment: Often, incorrect tax codes are assigned or the correct tax code is not even available in the ERP system. For AP transactions with foreign VAT in jurisdictions where there is no VAT registration, the proper tax code is often missing. Incorrectly coding these transactions or putting the foreign VAT into a suspense account will make them invisible.
Challenge #2 I Wrongly Charged or Uncharged VAT: During VAT audits one of the key areas frequently targeted is input VAT that has been recovered incorrectly. This especially applies when the spend is in the area of entertainment for both business guests and employees.
Challenge #3 I Complicated VAT Recovery: Despite simplification efforts, the VAT landscape and the rules remain complex. In addition, business models and supply chains have become more complex as they have developed and adapted to changing operating environments.
Challenge #4 I Achieving VAT ID Validation: VAT validation is a twofold challenge – validating not only the customer’s VAT ID especially in cross-border transactions, but the supplier’s VAT ID number as well.
Challenge #5 I Maintaining Compliance: Efficient use of technology lowers costs of data collection and compliance. As a result, more and more tax administrations around the world are implementing electronic auditing of business’ financial records and systems as part of their compliance regime.
VATBox discovers unrealized VAT on Foreign AP invoices
VATBox’s automated, enterprise-wide, cloud-based VAT recovery technology integrates seamlessly with ERP environments, extracting and auditing your data to verify the accuracy of VAT invoice data and improving results for foreign VAT reclaims. Proven to deliver unrivaled visibility, compliance, and data integrity, VATBox dramatically improves the overall foreign AP process and maximizes eligible VAT refunds. VATBox can help ensure that your company is always in compliance with the latest VAT laws and always has access to the most current VAT-related information. Request a free demo here.