Companies frequently incur foreign VAT, for example, where employees are attending training, business events or travelling abroad. It may be possible to recover this VAT depending on the rules in the country where the VAT was incurred. This can represent a significant cash flow opportunity for companies that they may not always be aware of.
Until recently, applying for a refund of foreign VAT was a time-consuming, burdensome and costly process. Detailed paper refund applications had to be made to each country where VAT was incurred. However, from 1 January 2010 a change of law occurred in the EU resulting in a simpler and more efficient method of making EU VAT reclaims.
Under the new system, a company can reclaim the foreign VAT which it incurred by submitting an application form to its local Tax Authority. Irish companies can apply for refunds through ROS, Revenue’s on-line system. A further advantage of the new system is the new timelines introduced for approving or rejecting the applications: the refund application must now be approved or rejected within 4 calendar months of the date of submission. This can be extended to 8 months in certain limited cases.
The issue of whether the VAT is refundable in the foreign country must still be considered. This can vary significantly from country to country e.g. VAT on meals and business entertainment is recoverable in France and Germany, however is not refundable in Ireland. Most countries however allow a refund of VAT incurred on certain types of common expenses incurred by companies abroad e.g. attendance at trade shows or conferences, accommodation costs and travel fees. It could therefore be very worthwhile for businesses to review their costs with a view to making a foreign VAT reclaim.
In general invoices do not have to be submitted at the time of submitting the refund application. However different EU Member States have different requirements. A Certificate of Taxable Status, which previously had to be obtained from Revenue, is no longer required.
Previously companies only had 6 months after the end of the calendar year in which the VAT was incurred to make a reclaim. However under the new system this is extended to 9 months. (i.e. a company which incurred VAT in January 2009 can recover this VAT up to 30 September 2010). However, in the current climate where liquidity is a challenge for companies, it makes sense to claim any VAT refund at the earliest possibility. A company can make up to a maximum of 5 claims a year (4 in some countries).