Domestic VAT 101: The process of claiming domestic VAT refunds

By now, you may have a relatively good understanding of the benefits of local VAT reclaim on your business. After all, additional revenue injected right back into your business is rarely argued against. But what happens when it's time to get to the nitty-gritty? How does the process of claiming domestic VAT refunds work, and are you doing more (or less) than required? Here's the deal on domestic VAT and reclaiming it. 

What is domestic VAT? 

In the world of VAT, a quick recap is always welcome. In a nutshell, Domestic VAT, or local VAT, is a country-specific tax levied on almost all goods and services. Suppose a business is VAT registered in the relevant country and incurs local business expenses. In that case, they are eligible for domestic VAT recovery through local VAT returns or separate domestic VAT claims. For many scaling businesses, this may include multiple countries. 

Understanding the process of domestic VAT reclaim

Right out the gate, it's essential to keep in mind that the domestic VAT reclaim process differs on a country-specific level. Keeping that in mind, what works best for your local returns and reclaims in one country, may not be the way to go in another. Relying on manual processes proves challenging for various reasons, but we'll get to that in a second. 

Step one: Are you eligible?

Before preparing to submit your claim, you must confirm your eligibility. Although this can differ from country to country, the overarching rule is that your business needs to be VAT-registered in the country it claims from. Other factors may also come into play here, such as confirming whether your type of business can reclaim as per country requirements and, if so, on which eligible expenses and at which VAT rate. 

Step two: Data collection

Generally, the next step involves the finance team combing through thousands of transactions and invoices to gather the relevant financial data, invoices, receipts, and domestic expense records. Without the right tool, this step is often resource-intensive and prone to error, as many eligible expenses are either not reported into the expense management system or slip through the cracks. When identified, this process also requires the finance team to review and organize expenses to ensure that they comply with local regulations and are recoverable via domestic VAT recovery. 

Step three: Invoicing instructions and supporting documents

The entire reclaim process hinges on a business's ability to adhere to the correct invoicing and documentation requirements as per the relevant local tax legislation. 

Step four: What about the deadlines? 

One of the most common reasons domestic VAT claims are rejected is due to filing late returns or claims. All domestic VAT reclaims must adhere to the country-specific return deadlines. Managing domestic VAT claims in multiple countries may prove particularly challenging. 

Step five: Prepare and submit the VAT reclaim application

Each local tax authority has its own reporting requirements that a business must comply with to reclaim its domestic VAT successfully. This may include filing a reclaim application form and mailing it to the relevant tax authority, delivering it in person, or submitting it through a designated and approved online portal. Some countries also have strict guidelines regarding which reporting tools are authorized to submit via their portal. Once the application has been submitted and it has all the relevant information with attached supplementary documentation, it will be reviewed by the tax authority and either approved or rejected. The process and timeline may vary depending on the tax authority. 

However, even if the above mentioned process goes smoothly, it still comes at the cost of critical resources, time, and additional VAT opportunities. In addition, just as your team may get the hang of it, new eligible expenses, legislation amendments, VAT rate changes, or additional reporting and invoicing requirements may slip under the radar. So, it comes as little surprise that millions of euros in unclaimed VAT slips through the cracks each year - despite best efforts.

Replace the heavy lifting with one centralized domestic VAT solution

At VAT IT, we help businesses to maximize their domestic VAT reclaim yield in one centralized all-you-need domestic VAT solution. Our domestic VAT solution is specifically designed to handle high-volume invoices and multinational VAT reclaim processes while keeping up with the latest VAT regulations, deadlines, and requirements per local legislation. Tag our local experts into your corner and leverage the potential of hidden VAT opportunities, streamlined recovery, and effortless cash back. 

We’ve got you (re)covered.