Thanks to more and more international ventures, travel has become an integral part of doing business in the global marketplace. Travel typically includes travel expenses – including actual cost of travel, accommodations, food and entertainment. All these business trip expenses linked to travel are subject to VAT, and if processed properly, VAT from travel expenses can be fully recovered.
Value Added Tax (VAT) is a consumption tax levied on goods and services in many international jurisdictions. The national tax systems of Europe, Canada, Japan and Australia allow for a refund of VAT to most non-resident business entities worldwide. For VAT not related to travel and entertainment, registration for VAT may be required in order to get a refund, and in some cases registration must be done prior to the business transaction.
Most registered businesses, subject to VAT (or equivalent tax), are entitled to VAT refunds that will them to reclaim their business VAT. However, the business VAT refund rules vary significantly from country to country in terms of the rates/expense items eligible for refund etc. and are very complex. If your business is based in the EU and VAT registered in your home country, you can qualify for a refund. Non-EU based organizations must be registered for business in their own country, to qualify for a refund. Some restrictions apply for specific sectors (public institutions, financial services) or for countries where there is no reciprocity agreement in place with the country of expenditure.
As each country has its own deductibility rules and rates, it is not always clear which rules apply to which country. For example, in France VAT on hotel expenses are only recoverable for third parties. In the United Kingdom, VAT is only deductible for employees and not deductible for guests, while in Germany the VAT is deductible to whoever the recipient may be. Go figure it out and try to recover your VAT in Europe!
The main types of recoverable expenses fall within the following categories:
- Hotel and Meals
- Car Rental & Fuel
- Taxis & Public Transportation
- Conferences and Trade-shows
- Professional Fees & Marketing
- Inter-Company (travel delegations, services, seminars)
- Import VAT, Logistics and Warranty Products
- Drop-shipping, Installations and Maintenance contracts
We have compiled a list of tips to help you improve your chances of T&E VAT recovery:
- Make sure you submit an original invoice. An original invoice has the word “invoice” written in English or in the local language.
- Do not accept only a copy/proforma invoice/bill/credit card slip, as this is not sufficient for VAT refunds.
- Ensure that the invoice is listed under the name and address of the business entity you are employed by. Do not put your home address on the invoice.
- A simplified invoice with a VAT breakdown is acceptable for public transportation, taxis and restaurant bills under EUR 150.
- Check the compliance of the supporting documents, as each country has its own requirements on this matter; if necessary, have the foreign supplier correct them.
- Transmit the claims before the 30th of September of the following year for EU countries and before the 30th of June for non-EU countries.
- Ensure that the foreign authorities have received the claim.
- Reply to potential questions from the authorities in the language of the country and within the timescale required.
- Consider implementing an expense claim management system, which would give complete visibility of VAT spend and recovery.
Errors, such as late submission of VAT, incorrect VAT charges, or invalid claim documentation, may be subject to penalty. Make every effort to ensure that you have the appropriate systems and procedures in place to limit your exposure.