What Is Foreign VAT & VAT Recovery How To

4 minutes reading time

VAT errors and mistakes that affect your companys costs and compliance

Worldwide, companies may be failing to claim up to $30 billion in VAT on travel expenses each year. For many, the hassle of claiming foreign VAT doesn’t seem worth the time investment, or the resources simply aren’t there to do it. Others still may not know how to go about VAT recovery and abandon the process before even starting it.

While VAT recovery can indeed be a laborious process, integrating it into your expense management system will result in considerable financial gains with little to no hands-on investment on your side. And in times like these, every single euro counts.

What is VAT?

VAT stands for value-added tax and is also referred to as goods and service tax or GST in some countries. It is a tax on the added value provided by every party in the supply chain. This tax is applied to the purchase of various goods and services and generally included in the final price paid by the business or consumer. VAT is most common in the European Union but also exists in 100+ other countries such as Australia, Canada, India, and South Africa.

Different VAT rates are applied by the countries and for different types of goods, but overall, the average VAT rate is about 15%.

What is a VAT refund?

Organisations whose business travellers are charged VAT or GST may be entitled to a refund by the visited country’s authorities.

For an expense to be eligible for a VAT refund, it must fall within the allowed types of expenses for that country and be accompanied by complete, accurate documentation (i.e. receipt or invoice).

In Europe, the refund must be claimed via the authorities in the country where the business is based, these will then pass the claim on to the authorities of the country where the expense was incurred.

You can recover VAT from all sorts of expenses, not just travel and entertainment. Some of the most commonly eligible expenses include:

  • Hotels
  • Car rentals
  • Conferences and events
  • Training
  • Marketing.

Pain points of foreign VAT recovery

The two main issues with recovering foreign VAT yourself are

  1. Having to deal with multiple foreign administrations, and
  2. Incomplete documentation.

Despite harmonisation at the EU level, the VAT recovery procedure remains cumbersome. Different guides exist for each country and different forms must be filled following the national rules of each. Because of this, many organisations believe that the time spent chasing after a VAT refund is not worth it unless their foreign expenses are fairly high. Small and medium organisations often won’t pursue VAT recovery due to a lack of resources and are thus leaving potentially sizeable sums behind.

Another blocker when attempting to recover VAT is incomplete documentation. If an invoice doesn't feature the supplier's VAT number for example, VAT won't be claimable on that expense regardless of whether it is eligible. Obtaining complete and compliant documentation requires follow up which can be time intensive and perceived as having a very low return.

How integrated VAT recovery works

Integrating your choice of VAT recovery partner with mobilexpense is a simple two-step process which consists of selecting your partner and providing us documentation attesting your relationship with them.

Once that is done, everything is taken care of for you, from obtaining complete records to the filing.

  • Your employees enter expense data and images into your EMS.
  • Your EMS regularly uploads this data to your VAT recovery partner’s database.
  • The partner downloads it and filters and mines the available data to identify compliant claimable expenses and non-compliant yet still claimable expenses.
  • For non-compliant but claimable expenses, the partner will request complete documentation from the original vendor.
  • The data is then verified, often via Optical Character Recognition (OCR), before being compiled via human expertise and/or Artificial Intelligence (AI).
  • Next, the recovery partner submits your claim to the appropriate tax authorities.
  • Finally, you are issued your VAT refund.

At no point in this process are your financial department’s resources involved, leading to a fully detached approach with zero risk.

Benefits of automated/integrated VAT recovery

By integrating a VAT recovery partner with your EMS, you are guaranteed

  • Accuracy: large volumes of invoices are reviewed with the help of OCR and rules to ensure only accurate data is captured and used for VAT recovery claims.
  • Global compliance, even for multinational entities: your VAT recovery partner understands the VAT laws and regulations applicable in the jurisdictions where you operate and keeps up to date with changes, so you don’t have to.
  • No human error: through the use of OCR and AI, user input errors and discrepancies are audited out of the data to ensure that it’s perfectly clean.
  • A hands-off process: your VAT recovery partner will request the reissue of non-compliant invoices for claimable expenses, ensuring minimal VAT leakage and maximum value.
  • Peace of mind: the responsibility of collecting data and ensuring the claims are correct is on your partner, meaning you don’t run the risk of incurring penalties for false or incomplete claims.

And, as VAT recovery agents function on a “no cure, no pay” basis, you only pay a percentage on the recovered VAT. If you don’t recover anything, you also don’t pay anything.


Find the VAT recovery partner for you

Avoid leaving money behind and increase profitability today by integrating VAT recovery into your expense management system. We are certain that you will only benefit from hassle-free automated VAT recovery and putting money back into your bottom line.

How it works step 1

We are proud to have partnered with a number of companies who will provide you with the recovery services to fit your needs.

Look through them here

Posted on 09 Apr 2021