Suppose you forgot your wallet at a restaurant, in a taxi, or at your last business meeting. Chances are pretty good that you’d like it returned - it is yours, after all. Similarly, no business can afford to leave significant VAT (value-added tax) reclaim opportunities unrecovered - especially considering the continuing volatility of thriving in a saturated and competitive market.
Easier said than done though, right? Well, that depends on what you’re doing.
Due to the industry’s complex global supply chains and ever-changing VAT legislation, maximizing your VAT potential is a resource-intensive and exhausting process without the right tools and guidance. Additionally, without the know-how to identify industry-specific hidden VAT opportunities, millions of euros effortlessly slip through the cracks each year and leave businesses prone to non-compliance risk.
What are the most common challenges hindering the recovery process?
However, not all businesses need to accept a sealed fate of exhausting critical resources in an attempt to reclaim their VAT. Here’s everything you need to know about how your business can reclaim up to 27% of VAT incurred in the engineering sector.
There are two types of VAT processes within the VAT recovery landscape, domestic and foreign. The type of recovery solution will determine all compliance requirements, rates, deadlines, processes, invoicing instructions and reporting obligations. How do you know which recovery type to implement? Well, that all depends on where the expense took place. Here’s a brief overview of both.
Domestic VAT is the collective word for all value-added tax that a business incurs within the country where they are VAT-registered. All recoverable expenses will therefore be reclaimed through their input VAT processes. For multinational organizations this often includes multiple VAT-registrations.
Foreign VAT is a tax levied on international goods and services. If a non-resident company, that is not VAT-registered within the relevant country, incurs VAT on international business expenses, they may be eligible to recover the costs though foreign VAT solutions.
Unfortunately, VAT reclaim has received a bad reputation for its complexity, often resulting in companies not wanting to invest in the process. However, VAT reclaim can hold significant value for engineering companies, especially when there’s a simple answer to overcoming the common challenges of VAT recovery. The most significant benefits include:
Value-added tax is one of the most common forms of taxation globally and is applied at every step of the manufacturing and supply chain. Although collected by many organizations on behalf of the government, in most cases, businesses are also fully entitled to reclaim and recover the VAT charged by suppliers. Regardless of how insignificant they may appear at first, these costs quickly accumulate. In fact, the global market potential for VAT reclamation alone is $74.9 billion. Your money has also been calculated into that equation, and it’s time to reclaim ownership.
Businesses in the engineering sector can reclaim costs incurred on all local and international eligible expenses, assuming that they comply with the specific legislation and requirements applicable to the country’s specific VAT recovery scheme.
The first step? Identifying your VAT recovery opportunities.
Although most businesses are familiar with the process of reclaiming local input VAT through domestic VAT reclaims, there is still a colossal opportunity to streamline and maximize the process. In addition, many businesses ace their domestic returns, but leave significant foreign spend unrecovered. Here’s what you need to know about managing and maximizing local and foreign VAT reclaims.
Even with a plethora of recoverable expenses, up to 54% of eligible VAT still goes unclaimed by organizations. Why? Unfortunately, local transactions are volume and resource-intensive and finance teams are battling to play compliance catch-up. Even if they are able to assess a few (hundred) expenses for eligibility and compliance, the manual processes are unsustainable and prone to human error - causing a significant loss in resources without the assurance of a successful reclaim.
Some of the two most common pitfalls that hinder many firms are regarding either over or under claiming VAT.
Are you overclaiming input VAT?
Are you under claiming input VAT?
As a business grows, VAT rules may require that it become registered for VAT in various countries. This adds an extra layer of complexity to VAT returns and can add a significant administrative burden. Moreso, eligible expenses become trickier to identify. This often leads to businesses claiming VAT on non-deductible expenses, which results in rejected claims, audits and possible fines.
The other side of the coin is the fact that many businesses don’t realize that they can reclaim VAT on a variety of significant but lesser-known eligible expenses. In some cases, insufficient data also makes it challenging to track down expenses and maximize returns, leading to significant VAT leakage and loss in potential savings.
The VAT IT Domestic VAT solution offers a way out of the tricky VAT landscape. Our team of experts combine years of field experience and our state of the art tech to help engineering firms reclaim the VAT element of expenses incurred within the country of VAT registration. This includes hunting down eligible expenses, maximizing your reclaim potential and administering all VAT requirements across multiple VAT registrations to ensure 100% compliance.
Feel like you’re too late to the game? Did you know that in some countries, VAT can be reclaimed going back up to five years?
Free up your finance team once and for all, and get paid while you do so. Maximize your savings and recover your eligible expenses on auto-pilot with VAT IT.
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. These expenses typically include travel and accommodation, entertainment, transportation, import VAT, and various other international supplier expenses. However, these expenses cannot be recovered in your local VAT processes - but that doesn’t mean they aren’t reclaimable.
Various VAT recovery schemes allow businesses to recover their VAT on international expenses. The Foreign VAT recovery solution focuses on any non-resident company claiming VAT from another country where they are not VAT-registered. This can include claims between EU countries, or non-EU countries claiming from EU and non-EU countries.
Engineering firms can reclaim VAT on tooling costs. Tooling costs include any expenses related to production techniques for tools and machinery. This includes fixtures, cutting equipment, and patterns. Often, the tooling supplies are located in the supplier country. However, seeing as the engineering entity may constitute the owner, the VAT incurred on the purchase of tooling parts may be eligible for VAT recovery - cutting tooling expenses by up to 27%.
To establish a foothold in the global market, tapping into the latest industry events and innovations is important. Naturally, trade shows, meetings, events, and conferences in the engineering industry generate colossal spending. However, they are also eligible for significant recovery. This includes reclaiming VAT event registration, attendance, transport, accommodation, and sponsorship fees.
Engineering projects can hinge on acquiring the right licensing and permits. However, these come at a significant cost. Fortunately, these costs may be eligible for recovery. Understanding which costs are recoverable and which are not can significantly impact your budget, contracting fees, and overall bottom line.
When engineering firms perform an installation/assembly in foreign countries they would theoretically have to register for VAT in every country where they performed installation/assembly. In order to simplify the VAT administration in this industry (VAT registration in each country where the assembly is made), the EU and UK has implemented a supply and install simplification method. Under this method, all supply and install sales invoices may be reverse charged to the VAT registered customer the installation was performed for.
Each industry has a niche scope for VAT reclaim. However, that by no means makes it a small scope. Some common high-value expenses that are recoverable in the engineering industry include
Right off the bat, it’s important to note that there is no standardized foreign VAT recovery process. The treatment, rates, processes, and eligibility criteria will differ depending on the country you reclaim your VAT from. That being said, there are a few general rules that apply to ensure a solid starting point for recovering your international expenses. This includes the following:
Reclaiming your money shouldn’t force you to compromise critical resources, time, or patience. Replace the redundancy of manual VAT recovery with VAT IT’s centralized solution. Our automated VAT recovery tool combines human connection and digital accuracy to simplify and maximize your VAT recovery. From unparalleled account management and spend visibility to country-specific experts to guide you through local legislation. We do VAT (exceptionally), so you don’t have to.
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