What are the VAT refund procedures in the European Union?
Understanding the VAT Refund System in the EU
VAT (Value Added Tax) is a general consumption tax levied on goods and services within the European Union (EU). It is borne by the final consumer and is calculated on the value added to goods and services at each stage of production and distribution.
However, non-resident businesses within the EU or businesses from outside the EU can recover the VAT paid on goods and services obtained for business use under certain conditions. This article aims to shed light on the procedures involved in VAT refund in the EU.
Determination of VAT Refund Eligibility
The first step in the VAT refund process involves determining your eligibility. Non-EU businesses may only claim VAT refund if their respective home country has a reciprocal agreement with the EU country from which tax refund is sought.
Specific requirements may also be imposed depending on the country - these often relate to the nature of goods or services used, and the purpose of their usage. Notably, some of the EU member States have reduced or zero VAT rates on certain goods and services.
Submission of VAT Refund Application
Businesses eligible for VAT refund may file an application through electronic portals set up by EU member states, using a specific application form provided by the country from which a refund is sought. Documentation, such as original invoices and import documents showing proof of VAT payment, may also be needed.
It's important to remember that the refund application must be submitted no later than September 30 of the calendar year following the refund period. Different member states may also impose different minimum claim amounts for a calendar year or less.
Assessment and Payment of VAT Refund Claims
In response to a submission, the EU member state's tax authorities review the claim form and decide whether to approve or reject the refund. If approved, the refundable VAT amount will either be paid directly to the claimant or offset against any tax liabilities in that respective country.
Often, the approval process takes between 4–8 months, but it can take longer in some cases. In situations where the member state doesn't process the application within a certain timeframe, the business may be eligible for interest on the payable amount.
The VAT refund system in the EU, while potentially beneficial for businesses, can be complex and varies between nations. Gaining a clear understanding of these rules and procedures is essential to make the best use of this benefit.
As always, consulting with tax experts or professional advisers to understand the nuances of the VAT refund process in specific countries can prove invaluable.