Cross-border VAT Recovery : what you need to know

Basics of Cross-border VAT Recovery

The EU wants to encourage international trade. Some special rules are in place to allow companies to recover VAT from overseas businesses. If your company doesn’t have an office in an EU country but has paid VAT for business purposes, you can claim to receive a VAT refund. 

Laws Governing Cross-border VAT Recovery

VAT in the EU operates under two pieces of legislation. One applies to EU companies and is known as the “EU refund mechanism”. It was formerly called the “8th Directive”. The other law applies to businesses outside the EU and is called the “13th Directive”. There are specific rules that a company must follow to be able to reclaim VAT under these directives. 

Countries Where Cross-border VAT Recovery is Available

Foreign VAT recovery is possible within all EU member countries. Some of them may have passed reciprocal legislation that stops non-European countries from claiming VAT if they do not have similar VAT provisions. 

For example, Germany applies the principle of reciprocity regarding VAT. Countries like China and South Africa cannot claim VAT when doing business in Germany. They do not offer the same cross-border VAT recovery program.

Countries Outside the EU That Allow for VAT Recovery

Several countries outside the EU allow for indirect tax recovery. These include the following:

• Australia (registration is required)
• Canada
• Iceland
• Japan
• New Zealand (registration is required)
• Norway
• South Korea
• Switzerland
• The United Arab Emirates
• United Kingdom (no longer part of the EU)

Types of Businesses that can Claim Cross-border VAT

Two types of companies are eligible to claim cross-border VAT recovery. 

Businesses that are registered for VAT in EU member countries can recover this tax on business expenses. The EU VAT Refund Directive permits them to recover the VAT.

VAT-registered companies outside of the European Union can recover VAT on their business costs from EU countries. The 13th Directive allows them to take this action.

List of Recoverable Expenses

Cross-border VAT can be recovered on entertainment and travel expenses. VAT can also be recovered on foreign Accounts Payable (A/P) expenses. The following are examples of expenses eligible for cross-border VAT recovery:

• A/P invoices
• Accommodation and hotel stays
• Car rental costs
• Conferences, exhibitions, trade show expenses
• Imports shipped DDP
• Foreign office expenses
• Goods
• Public transport 
• Restaurants
• Seminars/Training courses
• Taxis
• Tooling costs

Corporate gifts are included in the same category as business entertainment. A business may purchase gifts to say “Thank you” to customers. If the gift is worth 50 euros or less, it qualifies for VAT recovery. A business can submit receipts for entertaining employees, parking fees, and fuel costs.

How to Recover your Cross-border VAT

Suppose you wish to reclaim your company’s cross-border VAT. Your first step is to assemble your expenses and invoices to determine your claimable VAT. You will also need to compile separate documentation for each country where you do business. The requirements for each country are different, and the invoice forms also vary. Outsourcing this task to specialists is best for the best (and most efficient) results. 

Mooncard Credit Cards Make Tracking Cross-border Expenses Easy

Mooncard enables you to keep detailed records of all cross-border VAT paid in your expenses. Every time employees use their Mooncard credit card, they take a photo of the receipt. 

The employee’s expense report is pre-filled using data gathered from these transactions. The recoverable VAT amount is calculated automatically for your convenience and the data is entirely accurate. 

The information is forwarded to accounting as accounting entries. No one on your team has to spend time re-entering the data, which saves your company time and money.

Learn more about how the Mooncard corporate card can help your company with cross-border VAT recovery by booking a demo today.