Claiming VAT in the beauty industry

Explore the reclaim opportunities available within the industry

It’s no secret that the VAT landscape doesn’t always look pretty - and the beauty industry is no different. However, recovering up to 27% of your expenses? Stunning! 

The beauty industry is expanding rapidly, allowing many businesses to establish their foothold in the global market, but at what cost? Without the right VAT recovery solution for your industry-specific expenses, the price is far too high. Unfortunately, one of the most significant additional revenue streams and savings opportunities is also the most overlooked - VAT reclaim. 

Due to the industry’s complex global supply chains and ever-changing VAT legislation, ensuring compliant and maximum VAT recovery is resource-intensive and exhausting. The result? Millions of euros slipping through the cracks and going unclaimed. 

But not for lack of trying. 

So, how can businesses in the beauty industry quickly identify and recover what is rightfully theirs to reclaim without exhausting critical resources? Here’s everything you need to know about successful VAT reclaim within the beauty industry. 

Domestic VAT vs. Foreign VAT

Before diving into how to maximize your VAT recovery potential and streamline administrative tasks, it’s important first to get a firm grasp on the two different types of VAT recovery and how both impact your business in terms of claiming back VAT. 

Who can claim VAT in the beauty industry?

VAT can be reclaimed on all local and eligible international business expenses, assuming your business complies with the specific legislation and requirements that apply to the country’s specific VAT recovery scheme. 

So, if the scope for recovery is so large, what’s the issue? 

The challenges of recovering VAT in the beauty industry

The VAT landscape is ever-changing, and just when you become confident in your reclaim process, a new amendment to legislation or a manual process, or even a simple error can delay the entire reclaim process. Some of the most common challenges when recovering VAT in the beauty industry include the following: 

• Reviewing and assessing high-volume invoices
• Lack of knowledge of eligible expenses
• Incorrect invoicing instructions
• Amendments to legislation across the industry VAT scope

Managing the VAT reclaim opportunity within the beauty industry

When it comes to VAT recovery, all recoverable costs can be categorized into one of the following categories: Domestic VAT or Foreign VAT reclaim. To maximize both reclaim types while mitigating compliance risks, it’s essential to look into the two overarching types of VAT and how they may differ regarding blindspots, challenges, and opportunities. 

Managing blindspots when recovering input VAT

Many businesses within the beauty industry are already well-versed in their local input VAT returns. However, as a business scales, multiple local VAT registrations often create blindspots in the recovery process. In addition, local transactions are volume and resource-intensive. Sure, your finance team may be able to review and assess a few (hundred) invoices for claimability and compliance. Still, even then, businesses are often unaware of common errors that may lead to rejected claims, non-compliance, and tax audits. Is it time for a VAT health check? Here’s what should be on your radar. 

Overclaiming input VAT

As the list of eligible costs where VAT is incurred grows and VAT registrations start to increase, companies run the risk of overclaiming input VAT. This often occurs due to claiming input VAT on non-compliant or non-claimable expenses. What does this mean for your business? Unfortunately, if companies overclaim in their input VAT return, they run the risk of becoming non-compliant, which raises a significant flag with local tax authorities and eventually results in more frequent tax audits and possible penalties.

Underclaiming input VAT

Companies often run the risk of underclaiming due to insufficient data or not knowing that they are, in fact, eligible to reclaim VAT on certain expenses. These missed VAT opportunities are often challenging to track down, ultimately keeping businesses from maximizing their overall VAT potential.

How to better administrate and maximize input VAT potential 

From an administrative perspective, businesses often need help assessing and managing their input VAT claims to ensure they maximize and optimize their VAT operations. By outsourcing the input VAT process to VAT IT, our team can help you administer and maximize your input VAT potential while preventing you from claiming VAT on non-recoverable expenses. 

By leveraging our technological capabilities, we can extract all the required expense data, hunt down invoices and documentation that may not be in your T & E (travel and entertainment) files, and help you to achieve 100% compliance. Maximize your industry-specific T & E expenses, such as sales representative travel or costs incurred at beauty industry galas, while effortlessly administering mult–national VAT registrations and avoiding non-compliance and penalties.

Foreign VAT reclaim within the beauty industry

What is Foreign VAT?

Foreign VAT, also known as international VAT,  is a value-added tax that is included at a country-specific rate on various goods and services. Common eligible expenses include travel, lodging, car rental, and numerous additional costs. Companies often incur foreign VAT when conducting business abroad without knowing how to recover the costs to the company. Although this VAT cannot be recovered in your local VAT return, various VAT recovery schemes allow businesses to recover their VAT on international expenses.

Foreign VAT reclaim opportunities

Tooling and molding costs

Does your business make use of a special tool to produce containers for your products? VAT on tooling and molding costs is one of the significant costs recoverable within the foreign VAT recovery scope. This is because companies within the beauty industry often spend significant amounts on production techniques for tools and machinery. Molding expenses often also include expenses related to creating molds or shaping materials for packaging, containers, or product components.

Often, the tooling and molding machinery is located in the supplier country. However, as the beauty entity is the owner of the tooling machinery, and the supplier uses the tool to produce products or parts which are then imported by the beauty entity, the VAT incurred on the purchase of tooling parts may be eligible for VAT recovery - cutting tooling expenses by up to approximately 25%.

Clinical testing costs

Understanding VAT's impact on your clinical testing costs can help you avoid budgeting pitfalls and ensure maximum VAT savings. Beauty entities often undertake clinical trials within the research and development stage. Clinical testing generally involves the movement of products, especially considering that additional trials often need to be conducted in multiple regions to ensure the compliance of a product. This results in significant financial and contractual implications. Importing these materials is highly nuanced and country-specific. Often, the VAT implications involve multiple jurisdictions, specialist professionals, or hiring local staff.

Meetings, events, conferences, conventions & trade shows

Marketing and event schedules are quick to fill up in the beauty industry. But although tradeshows, meetings, events, and conferences in the beauty industry generate huge spending, they are also eligible for recovery. VAT on event registration, attendance fees, transport costs, accommodation, and sponsorship fees are just some expense categories that can be eligible for up to approximately 25% cost savings.

How to ensure accurate VAT charges on foreign supplier invoices

Within every industry, successful VAT recovery hinges on your ability to provide accurate and eligible invoices from foreign suppliers. However, due to the vast amount of invoices and the varying invoicing instructions per country legislation, this can be an error-prone task that frequently hinders the recovery process. 

Fortunately, a few core guidelines ensure accurate VAT charges on foreign supplier invoices. 

• All invoices must contain the required supplier information (name, address, VAT registration number, etc.)
• Invoices must be made out to your business, and not a third party, for VAT to be reclaimed. 
• The invoicing and reporting process must align with the country-specific reporting obligations, requirements, and deadlines. 

Rest assured that all your invoices can be eligible for recovery with VAT IT. VAT IT will assess and review all invoices to check their reclaim readiness. If our team of experts flags a non-compliant invoice, we will endeavor to contact your supplier to reissue the invoice and obtain a compliant one. 

How to claim VAT back: Getting started with VAT reclaims

Getting ready to tap into your business’s reclaim potential? We’re ready when you are. Until then, here are a few things to remember when starting the VAT reclaim process.  

Consider the recovery type

The overarching recovery type (domestic vs foreign) will determine the entire recovery process as well as which VAT Directive applies. Generally, all domestic VAT reclaims are reserved for claims from an entity’s resident country or claims from a country where the entity has a foreign VAT registration. Foreign VAT, on the other hand, concerns non-resident organizations claiming VAT.

Consider the VAT recovery scope

The VAT reclaim scope is a vast and tricky landscape. Due to this, many organizations are unaware of the large scope of eligible expenses that are rightfully theirs to reclaim. Consider the VAT recovery scope within your own organization and look at your EMS regarding opportunities for VAT recovery within Travel and Entertainment (T & E) costs and your finance system for Accounts Payable (AP). This includes costs incurred on travel, intercompany invoices, marketing, research & development costs, tooling on production lines, clinical trials costs, packaging, and professional services.

Consider your internal organizational structure

Navigating the complex regulations, processes, and country-specific rules within the VAT landscape is challenging enough; your internal organizational structure shouldn’t add to the complexities. To maximize your VAT return, it’s important to consider how your internal structure can hinder the reclaim process. Be sure to be mindful of working with the right agents, your spend visibility, and implementing the correct invoicing instructions across the organization.

How can VAT IT simplify and inject savings back into your business?

Free yourself from the administrative burden of the VAT recovery process. Rather, tag the VAT IT team of experts into your corner so you can focus on growing your business while we focus on effortless, streamlined, and maximum VAT recovery.

VAT recovery has never looked this good.