How to opt for the VAT refund?
Where a company incurs VAT in a foreign country, these amounts are normally recoverable. However, the tax authorities will reject your VAT refund if you do not follow the correct procedure to claim VAT back. Typically, foreign VAT is paid on expenses incurred abroad or invoices paid as part of your day a day trading. There are two procedures to claim back this VAT, through your VAT return or through a Refund Claim (EU Refund claim or 13th Directive). These two procedures are mutually exclusive, so you should make sure that you use the correct application.
As a general rule, businesses must recover VAT through the VAT return when they are VAT registered in the country where VAT was incurred. If not registered, VAT can be recovered through an EU Refund Claim or 13th Directive procedure (by EU Refund claim we refer to the former 8th Directive). A VAT registration is required when you make taxable supplies in the country. In When do you need to register for VAT? you can check more information about registration requirements. Usually, VAT registrations are not optional. Either you have to register and claim VAT in your VAT return or you cannot register and need to claim VAT in your EU VAT Refund or 13th Directive.
Recover VAT in your VAT return: VAT refund for EU registered businesses
If you are a business registered for VAT in a country and your input VAT is higher than your output VAT in a given period, you are normally allowed to request a VAT refund from the tax authorities. The conditions, frequency, forms and expected delay change significantly from country to country.
As a way of example, Italy requires a bank guarantee before accepting a VAT refund. In Spain, most companies are only allowed to get a VAT refund once a year. France requires a separate form every time a refund is requested and the UK only transfers the receivable amount to a UK bank account (although a cheque can be requested from the authorities). Poland has strong deadlines to repay any recoverable VAT, however, a VAT inspection triggers further delays.
Before the VAT refund is accepted, the tax authorities may carry an audit to confirm the right to deduct VAT and ensure that all requirements have been met. These audits happen more often in certain jurisdictions; they are also more likely when material amounts are to be repaid. In every VAT audit, it is important to provide a complete answer within the required deadline.
In practice, every company must double check that they have made taxable supplies in the current year before requesting a VAT refund through their VAT return. In case they did not make such supplies, the authorities will most likely deny the refund and ask the taxpayer to go through the 8th or 13th Directive procedure
Recover VAT through 13th Directive: VAT refund for non registered businesses
Non-VAT registered businesses that incur VAT in a Member State can normally recover these amounts. A business is not VAT registered when no taxable supplies have been made. Registering is usually not an option, either you have to register when performing taxable transactions or you cannot register when not doing so (exceptionally, some countries like UK allow voluntary registrations).
EU established companies will recover this VAT through the 8th Directive. Non-EU companies may claim this VAT through a 13th Directive refund claim. Not all companies are entitled to recover VAT in every Member State.
The 8th Directive establishes a standard procedure in all EU countries allowing EU companies to recover VAT incurred while not VAT registered. Provided they are eligible to request the refund (VAT registered in another country and not carrying activities that trigger a VAT registration), these companies will file a refund claim electronically by the 30 September of the following year. The first claim does not require additional documentation, but the authorities in the country of refund can request invoices and other documents. The time limits for these authorities to raise questions are also standard in every country. In practice, IT requirements in the country of establishment and subsequent questions from the country of refund make it complicated to recover this VAT without assistance.
Non-EU established companies may also recover VAT through the 13th Directive. The procedure to request these refunds is not standard across the European Union. Deadlines to request the refund are different, usually 30 June or 30 September. The eligibility for the refund sometimes requires a reciprocity agreement between the country of refund and the country of establishment of the claimant. Also, a fiscal representative is sometimes required.
In conclusion, if you are requesting a VAT refund through the 8th or 13th Directive, you should make sure that no taxable supplies have been made in the period of refund. The tax authorities will review your business model and the VAT treatment of all invoices and your refund will be denied if you should have registered for VAT in such period. This error would most likely trigger penalties on late registrations, late filings and, potentially, late VAT payments.
Marosa assist EU and non-EU companies recovering their VAT in every Member State. We approach all VAT recovery with a multilingual and automated approach, using our IT skills and tax knowledge to get back your VAT within the shortest delay. Please send us an email or give us a call at +44 20 3769 3728 to get help receiving your money back.