VAT Refund Story

VAT, or Value Added Tax, is a consumption based tax assessed on the value added to goods and services. It applies more or less to all goods and services that are bought. It is a tax ultimately borne by the final customer. It is charged as a percentage of the price, and is therefore visible. The rate charged will depend on the jurisdiction involved. The amount charged is usually visible on an invoice. There is a standard rate of VAT, but there could also be reduced rates, which would apply to the supply of certain goods and services. A zero-rate can also be applied by some jurisdictions to the supply of certain goods and services eg children’s footwear.

The 13th EU VAT Directive

The E.U. approved this directive in November 1986. (Council Directive E.C. n° 86/560, 17 November 1986 on the harmonization of the laws of the member states relating to turnover taxes – Arrangements for the refund of value added tax to taxable persons not established in Community territory, OJ. L. 21 November 1986, n° 326, 40) The Contents of the 13th Directive (Non EU to EU and Non EU to Non EU) The EU 13th VAT Directive grants the right for a business established outside the EU to recover VAT incurred in one of the 27 Member States for business purposes.Similar refund rules also apply for expenditure incurred in Norway and Switzerland. The reason behind this directive is to encourage foreign companies to do business in the EU. The 13th directive includes the Law of Reciprocity. This means that countries within the EU have the option not to offer the recovery of VAT to companies from countries which do not offer this same option of VAT recovery to the EU Member states.

Eligibility

Only VAT paid on business-related expenses can be reclaimed

You can use the 13th Directive to reclaim VAT paid in the EU if you are registered for business purposes in a non-EU country, provided that all of the following hold:
You are not registered, liable or eligible to be registered for VAT in the EU
You have no place of business in the EU
You do not make any supplies in the EU

What can be reclaimed back?

Most multinational enterprises (MNEs) incur VAT in countries where they are not established. A business may, for example, incur foreign VAT on trade fairs and conferences, meals and accommodation, travel, transportation and fuel costs, business entertainment, marketing and advertising costs, professional services, telecommunications, printing materials and stationery and training, ETC Even for large business expenses, recovering foreign VAT may be an issue. Although there are mechanisms for VAT recovery, it may be difficult for foreign businesses to fulfill the requirements in practice. According to an Organization for Economic Cooperation and Development (OECD) survey from 2010, over 80% of businesses incur more than US$10,000 of VAT on foreign business expenditure every year.