6 mins | August 1, 2023

Claiming VAT within the automotive industry

Explore the reclaim opportunities available within the industry

The automotive industry is one of the world's largest by revenue. So, it may come as a surprise that many companies within the automotive industry are losing millions of euros each year...

Claiming VAT within the automotive industry

Explore the reclaim opportunities available within the industry

The automotive industry is one of the world's largest by revenue. So, it may come as a surprise that many companies within the automotive industry are losing millions of euros each year in unclaimed or rejected VAT refunds. Along with the large business scope within the automotive industry, there is a vast reclaim landscape regarding value-added tax (VAT). However, due to complex global supply chains and ever-changing VAT legislation, the VAT reclaim process is often resource intensive and time-consuming.


Thankfully, although these challenges exist - so do we. 

With VAT IT reclaim in the driver's seat, your business can effortlessly reclaim VAT on high-value local and international expenses. Navigate your multinational, cross-border tax strategy and ensure you recover the VAT that's rightfully yours, improve operations, and optimize your supply chain. 

The first step? Understanding how VAT impacts your business and how to uncover the hidden VAT reclaim opportunities within your organization and maximize your VAT potential. 


Domestic VAT vs Foreign VAT

There are two overarching types of VAT that may be charged to certain goods and services; domestic or foreign VAT. The type of VAT that applies as well as the processes that go along with it, is determined by where the sale took place. In brief, the two VAT recovery schemes are as follows: 


Domestic VAT recovery

Foreign VAT recovery

Domestic VAT, also known as local input VAT, includes all value-added tax a business incurs on expenses within the country where they are VAT-registered. The eligible costs can be recovered in their local VAT submissions and processes. This may often include multiple countries (where they are VAT-registered) for multinational organizations.

Businesses often incur costs from international suppliers or one-off events. These expenses are also subject to VAT and are charged at a country-specific rate. Foreign VAT recovery enables non-resident businesses to reclaim the VAT portion on eligible international costs without needing to be VAT registered in that country.


Who can reclaim VAT in the automotive industry? 

In brief, any business that incurs VAT on eligible business expenses can rightfully claim back the VAT portion. Within the automotive industry, various niche local and international expenses may have accumulated significant VAT over the years. Some examples of businesses with substantial VAT reclaim potential within the automotive industry include: 


Automotive manufacturing companies

VAT affects various stages of operations during the automotive manufacturing process. This typically includes VAT incurred on raw materials, machinery, and equipment purchased for production. 

Auto dealerships

Auto dealerships incur VAT on the purchase and resale of vehicles and VAT from additional revenue streams such as maintenance, repairs, and aftermarket parts. 

Automotive repair and service 

Businesses that offer repair and service often have significant VAT implications on their operations. This includes VAT incurred on purchasing spare parts, consumables, and equipment. The VAT portion on these expenses is typically eligible for VAT reclaim. 


Throughout the automotive industry, VAT reclaim is essential to minimizing business costs and injecting beneficial cash flow into your business to elevate your business finance. However, despite best efforts, the reclaim process can come with some bumps in the road that are hard to spot if you don’t know what to look out for. 


Common speed bumps in the VAT recovery process

It’s important to note that most businesses aren’t willingly leaving money on the table. The VAT reclaim process is rife with challenges, and despite best efforts, many organizations struggle to maximize their VAT recovery yield - here’s why: 

  • Documentation Requirements: VAT refund claims are often interrupted or rejected due to insufficient or inaccurate documentation. This includes incomplete or error-prone receipts, invoices, and supporting records. 
  • Missed recovery opportunities: To maximize your VAT recovery yield, teams must understand which costs are eligible for recovery. Many refundable expenses are often not visible from an expense management perspective, making them near impossible to identify. 

  • Incorrect VAT treatment and classification: Since no standardized VAT recovery process exists, many claims are rejected due to not fully understanding or adhering to local legislation or Tax Office requirements. It is critical to understand the different types of expenses and classify them according to the correct VAT treatment per country-specific VAT rules and requirements.
  • Amendments to legislation: To successfully recover your VAT, your organization must be updated with the latest case law and legislation regarding VAT reclaim for your specific industry and expenses. However, VAT regulations are prone to change, and frequent updates and amendments aim to simplify and improve VAT legislation. This means that your business must keep up with local and international changes to stay compliant and eligible for VAT recovery. 

Fortunately, common roadblocks in the reclaim process don’t have to drain your resources or stall the reclaim process. Here’s what your business needs to know about maximizing savings in the automotive industry without compromising time, effort, or money. 


Automotive VAT reclaim 101: What you need to know about claiming VAT

The overall VAT reclaim process can be categorized into two overarching types of recovery. These two categories are known as Domestic VAT and Foreign VAT reclaim. 


How to fuel the domestic VAT reclaim process

Considering the domestic VAT recovery scope holds significant financial value, why are so many reclaimable expenses still slipping through the cracks while draining critical resources at the same time? Unfortunately, recovering the VAT portion of local business expenses often requires heavy input from already stretched teams. Due to the complexities paired with manual processes, domestic VAT processes frequently incapacitate critical team members, stealing focus from other core business objectives. 

If done manually, finance teams are tasked with the burden of not only combing through all transactions to find eligible expenses but also need to assess and review high-volume invoices for eligibility and compliance. The result? Saving opportunities slip through the cracks, a decreasing VAT return yield, and a team functioning over capacity. This often leads to two critical errors regarding the VAT reclaim process: overclaiming and underclaiming VAT. 


Underclaiming VAT

Overclaiming VAT

Common eligible expenses only scratch the surface when it comes to the scope of local VAT recovery. But unfortunately, due to hidden expenses, missed opportunities, or insufficient data, a good portion of claimable costs rarely make it into the final claims. This ultimately leads to a significant amount of savings slipping through the cracks, even though it is fully recoverable - keeping businesses from maximizing their VAT potential.

Managing multiple VAT registrations can be resource-intensive and tricky, especially considering the unique rates, regulations, and criteria each country is subject to. Therefore, teams often claim VAT on expenses that are non-deductible in that specific country. This can lead to rejected claims, loss of savings potential, and exposure to fines, audits, and possible penalties. 


Maximize your local VAT processes without the hassle

Fortunately, your team doesn’t have to suffer a similar fate. Our Domestic VAT solution streamlines the entire domestic reclaim process. It is specifically designed to deal with high-volume invoices and expense management systems to ensure accurate, optimized, and maximized VAT processes on local business spend. 

With years of combined local VAT reclaim experience in the automotive industry, paired with our state-of-the-art tech, our Domestic VAT solution equips the auto sector to drive smooth recovery across all local spending, including travel, materials, AP, import VAT transactions, and more within their VAT-registered country. 

Shift your domestic savings into the next gear and recover your eligible expenses on auto-pilot with VAT IT. 


Claiming Foreign VAT in the automotive industry

What is Foreign VAT?

Foreign VAT, or international VAT, is the value-added tax on various goods and services at a country-specific rate. It enables businesses to recover international expenses without being VAT-registered within the country of purchase. However, the VAT treatment within the foreign reclaim scope hinges on country-specific rates, eligible expenses, deadlines, and treatments.

Regardless, identifying your industry-specific VAT reclaim opportunities is the first step to maximizing your VAT yield within the international reclaim landscape. 

Here’s a look at high-value costs that often incur foreign VAT in the automotive industry.


Foreign VAT reclaim opportunities

Drive maximized returns on business costs and optimize your VAT processes by recovering common high-value international expenses in the automotive industry without worrying about capacity or compliance. 


Tooling and molding costs

Does your organization make use of specialized tools to produce parts? Businesses within the automotive industry often incur VAT on production costs for making tools, molds, or casts for specialized equipment or parts. These costs are common and expensive and often purchased from foreign suppliers using tooling machinery. Usually, the automotive entity owns the tooling machinery used by the foreign supplier to produce specialized products or parts, which can then be imported for use. The VAT incurred on purchasing the tools, molds, casts, cradles, etc., are, in most cases, eligible for VAT recovery, cutting your tooling expense by up to 27%.


Automotive testing cost

Import VAT charged on goods shipped to the EU from third-party countries or vice versa for testing is a high cost that may be recoverable. Moreover, testing costs to certify compliance with legal regulations, in-house, industry, or OEM-specific standards also incur considerable VAT.


Meetings, events, conferences, conventions & trade shows

As businesses scale within the automotive industry, it’s critical to establish a foothold in the international market. This includes attending trade shows, meetings, events, and conferences. However, a significant portion of these costs incurred is, in fact, VAT recoverable, adding significant savings to your annual MICE (meetings, incentives, conferences, and events) spend. 

Trade shows, meetings, events, and conferences in the automotive sector generate massive spend and are eligible for VAT recovery. VAT on event registration, attendance fees, transport costs, and accommodation expenses are just some of the expense categories eligible for up to 27% cost savings.


Import VAT

The automotive sector frequently incurs import VAT on goods from countries outside a specific customs area, such as the European Union (EU). Import VAT is usually charged at the ‘customs value’ rate, which is determined by the value of the goods at the time of import. This may include the purchase price, freight, and insurance costs. This VAT, however, is frequently eligible for recovery, which can hold significant financial value, reducing the overall shipping costs. 

Recover additional high-value expenses

  • Repair & warranty costs
  • Conversion, replacement & installation costs
  • Delivery costs of vehicles & spare parts, including specialized frames & cradles used during
  • Transportation
  • Engineering, R&D, recruitment, and other consulting services
  • Fuel charges at testing facilities
  • Testing facility rental costs
  • Subscriptions to trade associations
  • Travel & entertainment expenses (domestic & foreign)

How can VAT IT help drive back savings into your business? 

VAT reclaim shouldn’t rev your engines. Start your journey to simple, streamlined, and significant VAT recovery with experts by your side who always have you (re)covered. 

Replace gruelling manual processes with streamlined VAT recovery for your industry-specific business needs. With over 55 automotive clients, we have a proven track record as the leading VAT reclaim partner in the industry. VAT IT has reclaimed over €30 million in foreign VAT incurred on automotive-related expenses. 

We serve many of the world’s largest OEMs, system suppliers, component suppliers, and parts suppliers in the automotive industry, as well as hundreds of SMEs servicing the sector. We have helped our clients successfully recover foreign VAT on manufacturing costs, warranty costs, tooling costs, imports, automotive conferences, events, and more.


Drive effortless and maximized savings with VAT IT.

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