Taxes, in general, are complicated. Unfortunately, VAT is no different. When it comes to reclaiming your VAT on travel, though, one fact will lighten your mood. That fact is that you can get a refund for your VAT on travel, especially if you’re on the move for business. Our brief breakdown should help clarify any questions or concerns you have while travelling out of your country, with a specific focus on the European Union.
The basics of VAT on travel
The sad truth is that more than 10 billion euros are lost every year by businesses failing to recover VAT on international expenses. VAT can be reclaimed on a wide range of costs associated with training, exports, supplier invoices, and travel. A non-resident business operating outside domestic boundaries can reclaim some or all their VAT, helping improve company profit margins almost instantly.
Since the EU uses a VAT system across the board, whichever country you travel through will charge VAT on your expenses. From bus rides and taxi cabs to restaurant meals and hotel stays, your company will be paying VAT on business expenses during travel.
Even though VAT on travel is reclaimable as an expense, conditions change depending on the specific country you’re travelling in and what type of travel expense is being discussed.
Types of refundable travel expenses
Any refundable expense falls into four distinct categories.
- Refundable – The entire VAT amount on an expense can be reclaimed
- Partially refundable – A percentage of the VAT paid can be recovered
- Restrictions apply – The deductible amount is based on certain stipulations
- Non-refundable – No VAT can be reclaimed
Let’s take car rentals as an example of a travel expense to make the distinctions clearer. In Germany, VAT on these expenses is fully recoverable. In Belgium, you can reclaim part of the VAT paid, but in Greece, you can’t get any of the VAT paid back. Besides, some countries have special restrictions applying to different cost items, so you need to be mindful of those, too.
To see which travel expenses fall into the different categories based on the chosen country, check out our VAT Rules Map.
VAT refunds based on your business’ location
Another critical point to remember is that both EU and non-EU businesses can reclaim VAT on travel expenses. The primary condition a company needs to meet is as follows:
If your business incurs VAT in a country where you don’t usually supply goods or services, you will be able to reclaim VAT.
When it comes to cross-border refunds for an EU business, the business can’t be based in the refunding EU country and be a frequent supplier of goods and services there. There are some other restrictions, too, for EU businesses.
You might not be able to reclaim VAT if:
- You are not a taxable person for VAT purposes.
- You make VAT-exempt supplies.
- A special scheme covers you as a small business.
- A flat-rate scheme covers you as a farmer, for example.
For a non-EU business seeking cross-border VAT refunds, an EU country can deny a refund request if the claimant’s country doesn’t permit reciprocal refund rights for VAT, or if they have additional restrictions on certain cost items.
VAT refunds for tourists from outside the EU
While the bulk of this article looked at VAT on travel for businesses, it’s worth noting that non-EU tourists can get a VAT refund while they explore the continent. EU businesses can provide a refund for exports sold to non-EU tourists. If your permanent residence is outside the EU, or if you’re an EU citizen living outside the continent, you’re eligible.
Once you provide proof of residence, you can reclaim VAT, provided the goods are taken out of the EU in 3 months, and the value is above a certain minimum, which varies from one place to the next. For a step-by-step guide of the process, check this comprehensive article.
As you can see, rules and laws surrounding VAT on travel can get murky really quickly. Tax on an expense that is fully recoverable in one country is partially recoverable in another. At the same time, it can’t be refunded in a third country. It’s difficult to keep track of all these rules and regulations, especially using manual processes. That’s why a solution like VAT4U is ideal for businesses looking for an automated VAT recovery solution. Check out how our platform works here, and get in touch for more information.