Success in recovering VAT can be achieved with accurate knowledge and practice. The process is complex and necessitates major investments in resources. Due to improper handling of the recovery process, many companies miss out on major savings. It’s essential to understand the areas, conditions and possible methods for recovery because VAT rules change constantly.
International VAT recovery
For U.S. companies unfamiliar with VAT procedures in other countries, taking charge of all kinds and types of VAT recovery is necessary to avoid problems. In EU member states, VAT is unavoidable and there exists a harmonized VAT system with rates ranging from 15-25%. If your business doesn’t require registration in EU countries, EC legislation permits recovery of VAT on specific expenses.
Following the EC 13th Directive, companies in the U.S. may recover VAT on expenditures incurred in the EU. According to Accounting Web, In particular circumstances VAT may be completely avoided or kept to a minimum, such as when you use an international customs document (a Carnet) for goods.
Understanding the deadlines and rules is essential to tax recovery. Majority of the EU countries, only permit recovery within the current claim period. Others use the calendar year, but allow some backdating. For a smoother process, good documentation, timely filing and proper registration is essential.
Travel and Entertainment Expenses
Travel and entertainment expenses locally or abroad are eligible for VAT recovery. Business travel is among the most common VAT expenses. Several companies don’t recover VAT from these expenses since the process is time consuming and requires extra resources. VAT charged on these categories may go as high as 25% of amount spent.
Travel expenses include meals, accommodation, public transportation, taxis and car rentals, phones and internet. If either you or your employees attend such events, the VAT charged is recoverable. Whether local or abroad, these expenses are dependent on special rules that differ country by country.
Although it may be necessary, obtaining knowledge on countries VAT rules is a very thorough process. Insufficient or lack of knowledge on this may result in several qualified transactions becoming unnoticed and therefore not being recovered.
Domestic VAT Recovery
Recovering VAT locally requires a strict compliance to domestic rules and precedents. It is necessary to have sufficient and accurate knowledge of these rules to avoid expensive and financially draining audits by local VAT authorities.
Your business can recover VAT incurred on any domestic purchases depending on the specific local tax rules applicable. Tax recovery is allowed when your business has purchased goods or services for its own use. Where you work from home and purchases are made for private use, the VAT on the business proportion of the item may be recovered.
In case you bought any goods or services for your business before VAT registration, you can recover the VAT. If a maximum of four years have not elapsed since you purchased the goods or 6 months since you bought the services, you can recover the VAT.
VAT recovery can be performed on several business expenses, as long as you are aware which ones are eligible. The procedures and laws vary from the specific expense to the country involved. For a smooth, successful process, accurate knowledge is essential.
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