VAT on travel expenses in the Pharmaceutical industry

When discussing VAT on travel expenses, common topics include recovering the VAT incurred on flights, accommodation and other business-related travel expenses. 

Although these costs are recoverable and form a significant part of the VAT reclamation process, reclaiming VAT on travel expenses is only one small part of the puzzle piece in the grander scheme of foreign VAT recovery. 

Often, VAT recovery merely scratches the surface of what organizations can truly recover when it comes to international VAT. The result? Industries such as pharma and biotech are not maximizing their full VAT potential. 

So, what do businesses in the pharmaceutical industry need to know about VAT on travel expenses? Here’s our take on the most significant elements of foreign VAT recovery and how it’s helped us reclaim more than €53 million in foreign VAT for pharmaceutical companies alone.

Explore the hidden VAT potential in medical meetings and events

One of the most significant additional revenue sources is often the most overlooked. One of these revenue streams is the hidden VAT potential within medical meetings and events. In fact, up to 12% of all congress spending can be attributed to reclaimable VAT. Therefore, in order to maximize your VAT potential, it’s essential to consider who is responsible for identifying VAT exposure and recovery when it comes to medical meetings and events. 

This includes considering the agents you use. For example, employing agencies, who often work under the Tour Operators’ Margin Scheme (TOMS), results in most costs incurred reflecting as indirect costs, which has a critical effect on the VAT return process. Where the TOMS applies, organizations cannot recover input VAT on these ‘indirect’ costs.

Dig into additional high-value recoverable costs

To truly maximize your VAT potential, not only must organizations look at where and how they can streamline administrative processes but also at their industry-specific high-value costs that they can rightfully recover as a part of their VAT on travel expenses and foreign VAT solutions. A few examples of these expenses include: 

Clinical trial costs

Clinical trials are a quintessential phase of the later Research and Development stage. However, they don’t come cheap and often include high-cost materials. These materials are difficult to source and include medicines and biological materials such as plasma and tissue samples. However, due to the ever-increasing globalization of clinical trials, recovering VAT within these nuanced and intricate processes is challenging and can include many financial and contractual VAT implications. 

However, although these challenges exist, and although there is no commercial sale, there can still be significant VAT obligations and custom valuation challenges. 

Despite these challenges, up to approximately 25% (in the EU) of associated VAT costs can be recovered (with a little help from your VAT IT friends, of course). 

Tooling and molding costs

Another common expense in the pharma industry is tooling and molding costs. However, when thinking about recoverable VAT on foreign expenses, tooling costs rarely pop up high on the priority list. In practice, VAT constitutes a significant portion of the initial expenses necessary for acquiring production and molding equipment. However, frequently, pharmaceutical and biotechnology firms own the machinery used to create moulds or containers, even if it’s housed cross-border at the place of the supplier . Consequently, the VAT paid on tooling components may qualify for reclamation, potentially reducing tooling and molding expenses by around 25%.

Ultimately, you don’t need to dive into the niche recoverable costs within the pharmaceutical industry, but someone has to. At VAT IT, we free your team from the administrative burden of the VAT reclaim process while getting your money back.