If you are based in the United States and are doing business overseas, or even just sending employees to conferences or business meetings in other countries, your business will likely need to pay attention to Value-Added Tax (VAT). In fact, VAT should be part of your vocabulary even if your international business does not extend beyond the US’s northern neighbour, Canada.
What is VAT and Why Does It Matter?
VAT stands for Value-Added Tax. It is a consumption tax assessed on a product or service at each production and distribution stage where value is added. This means the end product may have had VAT assessed and added at several different stages. As a result, the person who finally purchases the product or uses the service then gets taxed at anywhere from 5 to 27 percent, on several products and services depending on each individual country, which can be a significant hit to your bottom line if left unrecovered.
Each country that implements VAT, has its own VAT rules, rates, registration processes, and deadlines. This makes it incredibly complex for businesses to invoice and collect the proper amount of VAT, submit accurate returns, and maintain compliance.
The good news is, US businesses can be refunded for much of their foreign VAT. This includes VAT charged on company travel expenses, conference fees, and other business to business VAT. In addition, VAT can be reclaimed for many e-products sold internationally, such as electronically-delivered music or eBooks. VAT reclaim is an important part of doing business internationally. Nowadays, there are some ways to simplify and streamline your business’s VAT compliance and refunds.
The Three Keys to VAT Reclaim
With a few key changes, your business can successfully navigate VAT and prevent overpayment, fraud and hefty fees for incompliance. The three elements to review are: financial processes, the quality of financial data, and technological tools.
As businesses look for more ways to implement process improvements to reduce costs and increase efficiency, the complex and confusing VAT process is a prime opportunity for improvement.
Whether you already have a process for handling VAT or you are creating one from scratch, the more you focus on ensuring quality at every step of your process, the better your chances are for increasing VAT recovery.
The Data Quality
This leads us to the next key element to consider, data. When working on your VAT process, it is important to consider what type of data you are working with. This will have a major impact on the VAT return process.
For example, is your Finance staff receiving appropriate documentation (e.g. receipts from international travellers) and is it trained to check if the correct VAT percentage has been charged? Is it clear which VAT charges are recoverable and which are not? This one is especially important as some countries have VAT as high as 27% which is recoverable. And finally, does the traveller have a valid invoice i.e. an invoice with all the needed and correct information and details?
All of these examples require staff knowledge to carry out the VAT process successfully. Good data is absolutely key to the VAT process, regardless of how manual or automated your process is.
The final key is to use technological tools at your disposal to simplify the process and increase accuracy by automating as much of the process as possible. Automated VAT recovery systems can help you increase your VAT recovery while ensuring full compliance, visibility, and management of all VAT expenses.
An automated VAT recovery system, such as VATBox, eliminates human error, data duplication, and missed opportunities for VAT recovery. The system connects seamlessly with any ERP and other systems to scour data and expense reports for VAT that can be reclaimed. It also uncovers where there may not be adequate evidence for VAT recovery.
Once all the recoverable VAT is discovered, the automated system validates, prepares, and submits claims to the appropriate countries. With VATBox, the complex landscape of different rules, rates, and deadlines for each country are no longer a headache for your Finance staff as VATBox applies up-to-date rules and regulations to all the data.
If you are looking for a technology solution for your VAT process, keep in mind that VATBox is the only technology company focused on simplifying the complex VAT reclaim process through expertly designed automation. In addition to maximizing returns, providing better visibility into your VAT spending, and helping you maintain compliance, VATBox offers a centralized platform for all your VAT needs, with powerful reporting capabilities and actionable insights.