Frequently Asked Questions about VAT Recovery

How do I fill in my VAT Return?

A business should keep a record of its sales and purchases, and the amount of VAT it has charged and can reclaim. These figures should be extracted for the period covered by the return.

If transactions have taken place within the EC, these also have to be put on the return.

In the UK, you may be eligible to use a simplified method of accounting for VAT known as the Flat Rate Scheme. You may be able to use this scheme if you are a small business with an annual turnover below £100,000. It allows you to calculate your VAT payment to us as a flat rate percentage of your total turnover, rather than having to account for VAT on individual sales and purchases. The percentage you use will depend on your type of business.

What is the Default Surcharge?

Default Surcharge is a civil penalty to encourage businesses to submit their VAT returns and pay the tax due on time.

When will surcharge be issued?

A business is in default if it sends in its VAT return and or the VAT due late. No surcharge is issued the first time a business is late but a warning is issued. Subsequent defaults within the following twelve months (the "surcharge period") may result in a surcharge assessment. Each time that a default occurs the surcharge period will be extended. There is no liability to a surcharge if a nil or repayment return is submitted late, or the VAT due is paid on time but the return is submitted late (although a default is still recorded).

How much is it?

The surcharge is calculated as a percentage of the VAT that is unpaid at the due date. If no return is submitted the amount of VAT due will be assessed and the surcharge based on that amount. For example, in the UK, the rate is set at 2% for the first default following the Surcharge Liability Notice, and rises to 5%, 10% and 15% for subsequent defaults within the surcharge period.

What sort of assessments are sent out?

An assessment may be issued if a VAT return is not submitted by the due date. The amount may be based on previous returns. If a business does not submit its returns time after time, the assessment value will increase.

An assessment may also be issued after a visit by an officer, if they have found errors in the amount of tax declared on previous returns.

Both types are included in the traders' debt and are collected in the normal way if they are not paid promptly.

How do the VAT Authorities check claims made on VAT returns?

Each local authority uses a different method. Usually, the date of receipt is recorded on all returns received in a VAT Central Unit (VCU). After face vetting and arithmetical checks, repayment returns pass though a system of automatic credibility checks. The majority of returns pass these checks and proceed immediately for payment. Some returns are selected for further investigation before repayment can be authorised. This credibility process is to protect the revenue and the interests of all tax payers.

Queried returns may be sent out to local audit centres. Officers there may contact you to arrange a visit to check the return, or they may be able to authorise payment of the claim from local knowledge they already hold. Once they are satisfied that the claim is correct, the return is sent for authorisation and payment.

Where are services taxed?

Services are taxed in the supplier's country unless they are covered by one of the special rules described below:

services relating to land and property - taxed in the country where the land is;
services involving physical performance - taxed in the country where the physical performance takes place;
valuation of, or work on goods for an EC VAT registered customer where the goods are subsequently removed to another country - taxed in the customer's country;
freight and passenger transport - taxed in the country or countries where the transport takes place;
intra-EC freight transport and related ancillary services and the services of intermediaries arranging those supplies -
certain intermediary services -;
certain services, including those of a professional and intellectual character, listed in paragraphs 1 to 8 of Schedule 5 of the VAT Act - normally taxed in the supplier's or customer's country depending on the circumstances. But in the case of telecommunications services and the hiring of goods, additional rules may apply which tax such services in the country where they are used and enjoyed -; or
hiring of means of transport- taxed in the supplier's country or where the transport is used and enjoyed, depending on the circumstances.

Once you have determined the country where the services are subject to tax, you will need to know the rate of tax which applies.

I have received a demand notice for payment of tax. Why?

VAT Authorities have not received payment of the tax/duty liability which is described in the demand notice. You should therefore pay the outstanding debt without delay so as to avoid further recovery action. VAT Authorities have a responsibility to all taxpayers to ensure that all taxes and duties reach the Treasury. They also have a responsibility to ensure that businesses which fail to pay on time do not have an unfair advantage over those that do. This means taking prompt action to recover debts.

I am not able to pay the debt immediately because of a temporary "Cash Flow" problem. What should I do?

Make urgent contact with your bank or your financial advisor to explore means of overcoming these temporary financial difficulties.

I have consulted the bank/financial advisor but they are unable to help. What else can I do?

Without further delay contact the VAT Authorities of your country. They may be able to help you by agreeing a brief period in which to pay the debt. They will try to be as helpful as possible and will consider carefully all practical options for settlement. However, if these do not produce a solution or they do not receive a response to their request for payment, they may, like other creditors, take action to recover the money they are owed.

What is the difference between a taxable supply and an exempt supply?

Input VAT may be recovered on a taxable supply, while no input VAT can be recovered on an exempt supply.

What is the current deregistration limit?

It depends on the country concerned. In the UK, £53,000. Some firms with a turnover just above the registration threshold face getting caught in the 'VAT trap' - a particular risk for companies whose customers are not VAT-registered. Once a firm reaches the threshold, it is, in most cases, required to register for VAT and has to raise its prices accordingly. As a result, customers start opting for unregistered rivals, which are VAT rate cheaper and turnover drops below the threshold. So the business de-registers and lowers its prices. But, of course, cheaper prices mean more sales, and the cycle begins again.

Who ultimately pays VAT?

The final customer.

What is input VAT?

VAT charged to the business when it purchases goods or services.

What is output VAT?

VAT charged by the business when it supplies goods or services.

How long should a registered trader keep their invoices?

It depends of the country. Usually is between 4 and 11 years. In the UK, six years.

Does a charity have to pay VAT?

Local laws apply here. Generally speaking charities do have to pay VAT on the purchase of goods or services, however there is usually specific VAT relief available to some charities in some countries. They can be exempt from VAT when they purchase goods or services related with their activity.

How often should VAT returns be completed?

In the UK, the standard accounting period is every three months however there are exceptions to this and with agreement from H M Customs & Excise a trader may submit returns over different periods for example every month.

Should I appoint a Fiscal representative in Belgium?

As of 1 January 2002 foreign businesses established in the European Union may choose either to appoint an officially recognized authorized VAT representative in Belgium or may opt for direct VAT registration and hereby choose to fulfil VAT obligations in Belgium themselves. When one opts for direct registration, one can still appoint a third party to fulfil VAT obligations in Belgium.

For certain foreign businesses that are not established in Belgium, this may mean that a Belgian VAT registration is no longer required. Other foreign businesses may still be obliged to register for VAT purposes in Belgium.

Non-EU businesses remain obliged to appoint an officially recognized authorized VAT representative.

May the VAT Registration be necessary when costs are recharged?

Normally you do not need to register in a country in order to reclaim VAT on business expenses. But where several companies within a multi-national enterprise attend a conference, the head office may need to register if it recharges the conference costs out to the individual companies involved. Registration can be avoided if the conference is held in Germany. In some countries, the need to register for VAT purposes depends on the amounts involved.

Is worth the VAT recovery for business trips?

VAT costs on expenses such as accommodation, restaurants, and conference room rental vary considerably throughout Europe. For instance, the difference between the highest VAT cost - in Czech Republic - and the lowest - in Luxembourg - can be as much as Euro 125 for a 24-hour business meeting abroad. For a one night conference, the difference can be as much as Euro 240. Depending on the amounts involved, companies may or may not want to go through the process of recovery.

How much VAT can we recover in a conference?

Amounts recoverable vary throughout Europe, depending on where the meeting or conference is held. A few European countries allow you to recover the VAT amount on all expenses, many disallow recovery on one or two items, while some enable no VAT recovery at all. Sweden ranks highest for VAT recovery (100%) whilst in Greece, the Czech Republic and Poland a 0% VAT recovery rate exists for all travel and conference-related expenses.

Is VAT recovery easier for EU countries?

Reclaiming VAT can be a laborious procedure and the ease and speed with which it can be achieved again differs from country to country. Within EU, the repayment is through a procedure known as the 8th EU Directive. This involves filling out a relatively simple form, but application needs to be done, except in 2 countries, before the end of June in the following year. If the methods of recovery within the EU are harmonized, the 8th EU Directive will no longer exist and application will be carried out using a simpler procedure similar to that used to reclaim VAT locally.

Are the procedures for non-EU countries more complexes?

If a company in a non-EU country applies for recovery of VAT from an EU country, application is made through the 13th EU Directive procedure, which involves more formalities and can, therefore, be more costly and laborious. The company will usually need a representative.

How long does it take?

The time it takes to reclaim VAT varies. EU countries are duty bound to reimburse funds within six months of application, but some make efforts to grant recovery of VAT in less time and some may exceed the recommended time-scale. In some countries, like Hungary, claimants can receive interest from the tax authorities if the repayment is not made within the country's statutory period.

Have the invoices to be in the name of the company?

Most countries require invoices to be in the name of the company, so business travelers should be aware of this in advance. There are some exceptions. For instance Norway and UK accepts invoices in the name of employees, and in Sweden, Austria and the Netherlands this exception applies to accommodation and restaurants.

Which are the Thresholds?

Some countries will only allow refunds for VAT if the amount exceeds a given threshold, which is usually low and depend of the period (3 months or 1 year) of the application

Why to know more about VAT?

VAT/GST is the world's primary method of taxing supplies of goods and services. All major trading nations (excluding USA) have a VAT system. Rates range from 0-25% and failure to consider VAT in pricing your goods/services could put you at a competitive disadvantage.

VAT is a self-assessing tax and the duty to register for VAT and correctly charge it falls on each individual business. The view of most tax authorities is that ignorance of the rules is not a reasonable excuse and should you fail to comply then you will be subject to penalties ranging from financial to criminal.

Are the service fees subject to VAT?

It has been widely assumed that all service fees are subject to VAT. This is not so as there are instances in which the charge is not subject to VAT.

What is the charge made for?

It is of crucial importance to distinguish between on the one hand charges made for providing advice to customers and on the other charges made for arranging "travel facilities" such as transport, accommodation etc.

Charges for advice will be subject to VAT in nearly all circumstances. The amount charged to the customer will be deemed to include VAT. However, VAT will not be due where the customer is a business based anywhere outside the country of invoicing or is a private individual resident outside the EU. Where the charge is made for giving advice, it makes no difference whether the advice is given in relation to accommodation, or transport or indeed any other service.

Arrangement Travel Fees

Charges made for arranging supplies of "travel facilities" should be taxed as follows:
Passenger transport - Some countries treat service fees for arranging passenger transport in the same way as commissions received from the transport provider. Therefore, in circumstances where a commission would attract no VAT neither will a service fee.

In some countries, commissions, and by extension service fees, are zero-rated for arranging supplies of passenger transport where the supply of the transport itself is zero-rated. To benefit from zero rating the agent must be acting directly for the transport provider.

Also, commissions, or fees, for selling transport on behalf of anyone other than the transport provider are subject to VAT. This includes sales made for tour operators (unless the transport is supplied as an in-house supply), consolidators and where the agent is a sub-agent.
Accommodation - service charges for arranging hotel or holiday accommodation are subject to VAT whenever the accommodation is in the UK. If the accommodation is outside the country, then no VAT from such state is due.

The above applies where the agent is acting for the person providing the accommodation. If a tour operator who has bought the accommodation from someone else provides the accommodation, the service fee will always be subject to VAT.
Car hire - service charges for arranging car hire will be subject to VAT unless the company on whose behalf the agent is acting is based outside the country.

VAT and the artist

VAT is a problem for artists. In some countries, if you're successful enough to make sales above the threshold you have to register. If you're not you are charged VAT by people who sell you things, which increase your costs when most businesses don't suffer this problem.

The artist has to be sure what their sales price is. If you sell through a gallery they usually act as your agent so legally what the customer pays is your selling price, even though you might see less than half of this. For this reason it's really easy to be caught out and think you don't have to be registered for VAT when in fact you do.

What is VIES?

Under the new VAT system intra-Community supplies of goods are exempt from VAT in the Member State of dispatch when they are made to a taxable person in another Member State who will account for the VAT on arrival. Therefore any taxable person making such supplies must be able to check quickly and easily that their customers in another Member State are taxable persons and do hold a valid VAT identification number. For that purpose, inter alia, each tax administration maintains an electronic database containing the VAT registration data of its traders. Such information includes the VAT identification number, the date of issue, the trader's name, the trader's address and, where applicable, the date of cessation of validity of a VAT number.
A computerized VAT Information Exchange System (V.I.E.S.) was set up to allow for the flow of the data held across the internal frontiers which:
enables companies to obtain rapidly confirmation of the VAT numbers of their trading partners Enables VAT administrations to monitor and control the flow of intra-Community trade to detect all kinds of irregularities
The unit responsible for the control of intra-Community trade in each Member State, the Central Liaison Office (CLO), has a direct access through VIES to the VAT registration database of the other Member States.

Exhibitions in Denmark

Following the EU VAT regulations, every company must state its VAT registration number when doing business with another company or organization. Therefore please state your VAT registration number on your registration.

Invoices for companies outside Denmark, but within the EU, are without VAT provided that we have your VAT registration number.
For Danish based companies and companies outside the EU invoices are inclusive a 25 % refundable VAT.

Why there are so many companies registered in the Isle of Man?

The Isle of Man is in Customs Union with the United Kingdom and maintains a VAT and indirect taxation regime, which is nearly identical to that of the United Kingdom. As a consequence, the Isle of Man is treated as being wholly within the European Union for all purposes of tariffs and trade.

The location for registration for Value Added Tax (VAT) is generally determined by the location from which taxable supplies are being made. Where a company is making taxable supplies from the Isle of Man, it must be registered in the Isle of Man, and for UK purposes, this counts as a UK registration.

Why VAT registration for non-EU business?

Sometimes a non-EU company conducts business in the EU countries where VAT registration may be necessary in order to get the refund. VAT registration should be done prior to the business event (however, it can, in some cases be done retroactively). VAT registration means that the non-EU company is legally required to:
1. Register for VAT in the European country where the business activity takes place.
2. Assess (charge) VAT on all invoices issued to the European customer.
3. Deduct most of the VAT incurred from the European vendors.
If a company does not register when legally required, the VAT incurred from the European vendors is not refundable.

Why should be used a reclaim specialist?

The VAT refund rules are very complex and vary from country to country. The local tax authorities require that the application and the communication be done in their own language. A reclaim specialist, like us, makes it convenient for your firm to collect the refund and manage the VAT registration when required. It takes care of the local tax authorities, and understands their unique requirements and customs. It has the necessary procedures to expedite your claims for prompt and maximized payment, and to help you to structure your routines for on-going VAT refunds

Who doesn't need to register?

A non-EU incorporated company which sells goods or supplies services into the EU or purchases goods or services from the EU but does not do both, need not register, as such a company would be trading with but not within the EU. However, a non-resident Irish Company will be treated as EU incorporated, and would therefore need to register for VAT.

Is possible to have a UK VAT representative of offshore companies?

Yes, it´s possible to use offshore companies with their own UK VAT representatives. By taking one offshore company in isolation, it will be possible for that company to register for VAT purposes in the United Kingdom by setting up a UK limited company to act as its agent for VAT purposes. The UK limited company could either be a subsidiary of the overseas company or could be a company with common ownership.

Are different names for VAT?

Yes and the existence of different names make more complicate the issue for international companies. VAT, GST, TVA, IVA, BTW, AVL, FPA, Mwst, MOMS…. whatever you call them, value added taxes are now collected in over 130 countries around the world, and are here to stay. It's a pity they are not all the same even if they are founded on the same principles

How to appoint a Fiscal Representative?

Depending on the county, but one of the first steps is to sign up a contract, which establishes rights and obligations for both parties, according to the local Law. Financially supporting the Fiscal Representative before the local Administration, by signing a " financial guarantee", when required.

Giving the Fiscal Representative enough power in order to give him ability to deal with the matters relating the VAT produced by the activity before the local Administration; this representation must be granted before a Notary with a " comment from LA HAYE" and translation to the local language by legal interpreter, or before a consulate because they have consideration of a notary.

What is a VAT Group?

In some states, traders joined by sufficient economic and administrative ties can be registered as a group. Members of a group can disregard supplies between them for VAT purposes; in other words, they do not have to charge each other VAT. However, the criteria for registering, as a group, even in the countries where it is possible, is strict and it should not be assumed that an application would be accepted. Germany is an exception, where group status is a matter of fact, and therefore a trader cannot choose to group or not.