The complexity of Value Added Tax (VAT) is made far more confusing when there is an international element involved. In today’s global business world, the majority of businesses are forced to manage and administer not just domestic VAT, but also foreign VAT. An important and all-too-often overlooked part of administering international VAT is in the foreign VAT reclaim. Not only is this endangering your company’s VAT compliance, but could also mean that your company is missing out on a small fortune in lost VAT monies that could well be reclaimed.
Administering foreign VAT is no easy task. The more countries your business deals with, the more VAT laws and regulations your tax department must master. Tax rates vary considerably with each border crossed and the complexity is heightened by different rates (or exemptions) being applied to certain types of products in different countries. To administer the growing number of cross-border transactions takes a great deal of time and human effort, which whilst providing a strain on perhaps already limited resources, often means that opportunities for foreign VAT reclaim often get overlooked in the whole scheme of company VAT return.
Foreign VAT Reclaim in Travel and Expenses
The largest area where businesses are missing out on foreign VAT reclaim is in Travel and Expenses (sometimes referred to as Travel and Entertainment, or T & E). Just as the supply of goods and services and the associated VAT regulations are no longer just a domestic matter, a company’s travel and expenses are of international importance. Travel and Expenses are the second largest operational cost of a company, after salaries, and can constitute approximately 10% -12% of a company’s overall budget. This figure looks set to only increase as global business travel spending was estimated to be worth $1.4 trillion in 2017, and has been forecasted to increase to $1.6 trillion by 2020.
Global business travel spending is estimated by the Global Business Travel Association (GBTA) to be worth $1.4 trillion in 2017, and has been forecasted to increase to $1.6 trillion by 2020. This figure could well rise as a growing global economy means higher prices for business travel. In a JTB 2018 Global Travel Forecast for Businesses report, airfares are expected to increase 3.5% globally and hotel prices overall are expected to increase 3.7% globally. But as the corporate T & E budgets increase, how well versed is your company and your employees in foreign travel and expense VAT recovery? How much of the $5.5 billion of unclaimed VAT is your company missing out on? And what can your company do to ensure that the 20% of reported travel expenses that have recoverable VAT actually get reclaimed?
Manual Reporting or Insufficient VAT Technology Leads to Costly Errors
Even though the T & E budget may well be large, even in 2018, an overwhelming majority of travel expense reports are submitted and reviewed by hand. Employees are human and make mistakes which can prove to be costly. Over 25% of expense claims are reported to have some sort of error with the actual data capture. Employees have been known to claim the incorrect amount either knowingly (fraud) or more likely because of an input error (e.g., $2000 entered as opposed to $20.00). Any data that is inputted by an employee is open to error and this includes, dates of travel, currencies, destination and amounts: all of which affects the amount of VAT recovery possible as well as compliance.
Reporting from the employees is famously unreliable and most Expense Management Systems (EMS) are unable to check an actual receipt or physical invoice against the amount claimed to prevent costly VAT mistakes being made and non-compliance. Then there is the problem of missing receipts. More than 20% of all expense claims fail to include a receipt for at least one item. Add on top of that the fact that employees sometimes submit non-original or invalid receipts when filing a claim and you have a massive headache for your company’s expense manager and a possible misreported, albeit unintentional, VAT liability. It can be little things like having a personal name instead of a business name on an invoice which mean VAT compliance is not adhered to and VAT recovery is not possible.
Staying on top of and organising all structured and unstructured travel and expense and the resulting foreign VAT reclaim is not easy by any stretch of the imagination. A great deal of T & E’s is via company credit cards, which are relatively simple to track and account for. However, a lot of other expenses are paid with personal credit cards or in cash, which not only add complexity to a paper trail but makes tracking and VAT recovery a much more difficult task.
Let VATBox Do the Recovery for You
What is and isn’t possible to claim VAT back on is, without doubt, very complicated. Not only can it depend on what you’ve purchased, and where it is purchased, it can also depend on whether you are an employee or whether you are a director. The VAT amounts and rates differ wildly from country to country as well as product to product. On top of that, the VAT rates and eligibility also tend to change periodically, so what might have been relevant and eligible in 2017, may not be the case in 2018. To ensure your company is maximizing its foreign VAT reclaim, an intricate and up-to-date knowledge of global VAT laws and regulations is required, as well as a full understanding of recovery formats and reciprocity arrangements.
Being able to effectively and compliantly navigate the minefield of diverse countries’ VAT rules, regulations and directives can be the difference between success and failure in VAT recovery. There is little or no margin for error in foreign VAT reclaim and whilst success can result in a sizeable amount of money recovered, failure could not only mean lost money, but also non-compliance, which brings its own legal and financial implications.
With such large sums of money involved and the threat of costly non-compliance, it is essential that your company has the VAT technology in place which ensures all VAT-related risks associated with foreign VAT reclaim are negated and there is no human error at any stage. No matter what country, or size of the expense, VATBox validates all the information and eligibility as per the very latest global VAT compliance rules. The education of employees is important; knowing what to claim for and how, goes a long way to ensuring VAT compliance and a fair degree of foreign VAT reclaim. However, that is just one small part of the process. VATBox aggregates all the necessary data from multiple sources to enable your company to identify, validate and claim back all the correct amounts of recoverable foreign VAT and ensures your company VAT return is compliant and no money falls through the cracks. Let us show you how your company can thrive in today’s complex financial times. Request a free demo here.