Claiming VAT within the retail industry

Explore the reclaim opportunities available within the industry

Let's face it - VAT reclaim processes can often feel like a headache instead of a valuable revenue stream. That is if you're tackling it alone, of course. As a business scales, so does the reclaim opportunity. But unfortunately, along with an increasing VAT reclaim scope comes increasing complexities and a demanding landscape - especially for teams with plenty on their plates. So, how can multinational retailers keep up with an expanding budget, exponential business growth, and VAT opportunities without depleting their resources? Cue streamlined, effortless, and significant VAT recovery.

But before we can dive into how retailers can maximize their VAT recovery yield, it’s important to understand why to prioritize VAT reclaim in the first place. Apart from the apparent benefits that additional revenue can give businesses, the retail industry can particularly elevate their finance by reclaiming VAT. By increasing the VAT yield, retailers can reduce the cost of inputs and improve their pricing structure and profitability in a competitive market. So, what’s the catch? 

Reclaiming VAT can often feel burdensome and can take critical players from the playing field. Despite best efforts, the retail industry still falls victim to millions of euros in unclaimed VAT slipping through the cracks each year. Is your business missing out on VAT savings too? Yes. Is there something you can do about it? Definitely!

Here's what you need to know. 

Domestic VAT and Foreign VAT

There are two overarching types of VAT recovery that may apply to your business. Both are determined by the place where the expense or transaction took place. 

Who can reclaim VAT in the retail industry?

Most businesses in the retail sector can rightfully claim the VAT portion of eligible business expenses as long as they comply with the country-specific VAT rules and requirements. Although there is no one-size-fits-all VAT guide, there are standard eligibility requirements that businesses must keep in mind to aid the VAT recovery process. 

• VAT registration: Within the domestic VAT scope, all businesses are required to be VAT registered. Additionally, they must comply with the relevant registration requirements of the local tax authority. Although this may not apply in circumstances where foreign VAT applies, businesses must still comply with their domestic registration requirements to be eligible for international VAT reclaim.
• Business purposes: One overarching rule that applies to all eligible expenses, both local and international, is that it needs to be directly related to the business objectives/purposes of the retailer. Expenses for private use are not recoverable. 
• Documentation requirements: The VAT recovery process hinges on retailers’ adherence to country-specific documentation requirements. This means that businesses must maintain the proper documentation to substantiate their VAT reclaims. The required documentation can include anything from supplier invoices and receipts, import/export documentation, and other supporting documentation required by the relevant tax authority. 
• Thresholds: Certain minimum thresholds may apply for VAT reclaim eligibility depending on the country. 

VAT reclaim 101: What retailers need to know to optimize and maximize your VAT recovery

Although the VAT treatment differs depending on the country, there are two overarching types of recovery that can apply to your business. The type of recovery is determined by the place the expense took place; local or abroad - also known as domestic or foreign VAT recovery. 

Domestic VAT reclaim in the retail sector

Businesses in the retail sector are no strangers to local input VAT returns. However, as businesses scale and expand their sales to other countries, multiple domestic VAT registrations may be required. Administering and maximizing various VAT registrations can prove challenging to even the most veteran retailers often leading to overclaiming, underclaiming and ultimately - non-compliance, leading to unexpected VAT costs and penalties. 

Understanding the process of domestic VAT reclaim

Many retailers still rely on their internal departments to recover VAT. However, as a business grows, successfully recovering the VAT portion on local business expenses is resource-intensive and time-consuming. Furthermore, the process often incapacitates critical members of the finance team, keeping them away from other priority tasks. This is because of the high-volume nature of the VAT recovery process. From a data collection perspective, finance teams are burdened by the task of trying to comb through thousands of invoices in order to gather relevant financial data, invoices receipts, and expense records for domestic and international expenses. 

To add to the boiling pot, even with the vast amounts of data, the process still hinges on their ability to keep track of multi-national registration requirements, invoicing instructions, regulatory changes, VAT rates, reporting requirements, and deadlines. 

Overclaiming input VAT 

As sales start to scale across multiple countries, the list of eligible expenses grows with it. However, each local jurisdiction is subject to its own VAT regulations, making it tricky to identify the various eligible expenses. This often leads to many businesses claiming input VAT on non-deductible expenses. This not only results in rejected claims but can increase the risk of tax audits and potential penalties. 

Are you under claiming input VAT?

Many businesses fail to maximize their VAT input VAT recovery potential fully. Due to insufficient data or unidentified VAT opportunities, companies often underclaim their input VAT, ultimately keeping them from maximizing their overall VAT position.

Administer and maximize your domestic VAT with VAT IT

VAT IT has mastered the art of domestic VAT reclaim and combines everything you need to maximize your VAT yield in one centralized solution. The Domestic VAT solution is specifically designed to deal with high volumes of invoices while aligning all processes with the latest VAT regulations, deadlines, and requirements per local legislation. Our local VAT solution tapped into our vast network of local VAT authorities, field experts, and state-of-the-art tech to bridge the gap between potential savings and approved returns straight into your pocket. 

Maximize your reclaim potential on local expenses within the retail sector, including local inventory purchases, rent and utilities, maintenance and repairs, and marketing and advertising expenses while managing your VAT obligations and staying compliant.

Claiming Foreign VAT in the retail industry

What is foreign VAT? 

Foreign VAT, or international VAT, refers to the value-added tax incurred on goods and services outside the country where you are VAT-registered. Seeing as common international expenses can’t be reclaimed in local VAT returns, an alternative VAT recovery method applies - foreign VAT recovery. This reclaim scheme allows non-resident enterprises to recover the VAT portion of international business costs spent in foreign countries. However, it’s important to note that the reclaim process is subject to each country’s specific VAT rules, regulations, and processes set in place by Foreign Tax Authorities. 

Although there is no standardized foreign VAT reclamation process, there are still common high-value costs across most industries eligible for VAT recovery. 

Here’s a look at the most common costs eligible for VAT reclaim in retail. 

Identifying foreign VAT reclaim opportunities in retail

Your retail business has foreign VAT exposure from the following high-value international expenses.

Meetings, events, conferences, conventions & trade shows

Establishing a foothold in the global marketplace requires a global presence. Creating this often results from attending trade shows, meetings, events, exhibitions, and conferences - commonly known as MICE (Meetings, Incentives, Conferences, and Events) in the VAT world. However, attending these global events often costs the company a significant amount. Often, these costs are regarded as an investment, future ROI, networking, and business growth. However, through successful VAT reclamation, up to approximately 25% of these costs can be injected into your business. Recoverable costs may include VAT on event registration, attendance fees, stand construction, booth rental, marketing materials, transport, and accommodation.

International travel and entertainment 

Travel and entertainment VAT, also known as T & E, forms a significant part of the reclaim scope. This includes all eligible business expenses related to business travel, including accommodation, restaurants, transportation, and entertaining clients. T & E costs often hide in the most unusual places, making them challenging to pinpoint financially. However, they accumulate significant savings over the years and, if reclaimed, can become a source of additional revenue that competitors frequently miss. 

Entertainment expenses, for example, include any expenses towards business travel or client entertainment, like

• Business-related meals and entertainment at social and sports events, restaurant meals, and theatre tickets
• Restaurants/food
• Taxi fares and other transport services

However, each country has specific rules around what expenses are eligible, so expert analysis of costs incurred is crucial.

How can VAT IT supercharge your savings? 

Ultimately, the process of reclaiming your business shouldn’t feel as if it isn’t worth the trouble and effort it takes to reclaim it. With us by your side, you can reclaim the maximized amount of VAT for your business without having to do the heavy lifting. 

Whether your business incurs VAT on local costs, international costs, or a combination of both, we ensure that it doesn’t end up lost.