VAT recovery within the manufacturing industry

Explore the reclaim opportunities available within the industry

Manufacturers often rely on various multinational processes and suppliers. However, as their business expands, successfully recovering local and international value-added tax on their expenses often becomes significantly more challenging. However, as the challenges increase, so does the refund potential. 

Manufacturers, particularly, are challenged with intricate and niche contractual and financial obligations regarding tooling, supply and install, transport, and logistic costs. However, understanding how VAT impacts high-value processes and how to reclaim it successfully can help manufacturers maximize their savings, free up their resources, and inject finances into the business, allowing them to leverage a financial advantage over their competitors. 

However, due to the industry’s complex global supply chains and ever-changing VAT legislation, maximizing your VAT recovery can be resource-intensive and exhausting. 

But there’s a reason why we have a proven track record as the leading VAT reclaim partner in the electronic and metal manufacturing industry, having reclaimed more than €40 million in foreign VAT. Here’s how.

VAT Reclaim 101: Which Expenses Can You Reclaim in the Manufacturing Industry?

The first step to acing the VAT reclaim process is identifying which expenses are eligible for VAT recovery. Although each industry has a plethora of niche recoverable costs, two overarching reclaim types determine the VAT reclaim process; domestic and foreign VAT recovery. All recoverable costs within manufacturing will fall in one of these reclaim types. 

Reclaiming Domestic VAT for Manufacturers

Even the most sought-after “tax law“ guru can attest to the fact that knowing and understanding the VAT rules of just one country is a full-time job. Add multiple VAT registrations to the mix? Needless to say, things start to slip through the cracks - sometimes without even knowing it. 

Although local VAT may seem insignificant when looking at individual transactions - when reviewing and assessing thousands of invoices (past and present), the reclaim potential can add significant value to your business. In a competitive industry, businesses can no longer afford to ignore it.  So what’s keeping you from fully maximizing your domestic VAT yield? 

Understanding the local recovery process

Although most business expenses are recoverable, turning potential savings into actual figures in your bank account can be challenging and tedious. Many manufacturers still rely on manual recovery processes that quickly drain critical resources and incapacitate valuable team members. 

Traditionally, your finance team is tasked with combing through thousands of transactions to assess and review their reclaim eligibility. Afterwards, they must assess each invoice to check whether it complies with the local VAT return invoicing instructions. Not only does this process stretch your team, but it’s often prone to error, allowing significant cash to remain unclaimed. The two most common culprits? Underclaiming and overclaiming your input VAT. Here’s why. 

As your business scales, you may have local VAT reclaim potential in multiple countries. Is there additional time to stay updated on changing legislation, deadlines, registration requirements, invoicing instructions, or reporting regulations? Probably not. This leads to two common pitfalls of maximizing and administering the local VAT returns.

Are you overclaiming VAT?

Due to the plethora of country-specific VAT rules and regulations, eligible expenses (and their rates) may differ depending on which country you’re claiming input VAT from. Without the right solution, companies frequently overclaim and include non-deductible or incorrect expenses. This not only leads to rejected claims, but could lead to possible fees, penalties and audits. 

Are you underclaiming VAT?

Most businesses are so caught up in administrative tasks, that there is no time to dive into the rest of the reclaim scope that is applicable to their specific business. Often, businesses drastically underestimate what they can rightfully claim, simply due to a lack of resources, knowledge or data. 

So, what’s the solution? Is there a way to maximize your local return without compromising your resources? 

Cue VAT IT's Domestic VAT solution. 

A home-ground advantage with VAT IT

You’re not too late in the game to start claiming victories for your team. Did you know that in some countries, VAT can be reclaimed going back up to five years? Leverage our team of experts and tap into a well of savings that have been accumulating over the past few years, and set up your firm for the future. 

Our local domestic VAT solution combines years of field experience and our state-of-the-art tech to help manufacturers recover the VAT portion of their local business expenses, including travel, materials, AP, import VAT transactions, and more within their VAT-registered country. 

• Free up your finance team
• Identify hidden VAT reclaim opportunities
• Assess and review all invoices on auto-pilot
• Elevate your finance and inject savings back into your business
• Work with VAT experts who ensure country-specific compliance prior to submitting returns 

Maximize your savings and recover your eligible expenses on auto-pilot with VAT IT. 

Reclaiming Foreign VAT for Manufacturers

What is Foreign VAT Recovery?

Foreign VAT, or international VAT, is the portion of value-added tax incurred on all eligible international business expenses at a country-specific rate. Although your business may not be registered within the country where these expenses are made, you’re still fully entitled to recover the costs as a non-resident entity via the foreign VAT recovery process. These expenses typically include travel and accommodation, entertainment, transportation, import VAT, and various other international supplier expenses. 

As your firm scales, so does its global presence and professional network. Manufacturers, in particular, may have various international suppliers without the necessary means to recover the VAT portion of these costs. 

The first step? Identifying the significant reclaim potential within the foreign VAT landscape. 

Identifying foreign VAT reclaim opportunities within the manufacturing industry

Tooling and molding costs

Many production techniques for tools and machinery require a high set-up cost. This includes Plastic Injection Molding (thermoforming). However, these costs may be VAT recoverable. The manufacturer often owns the tooling machinery (even though it is located in the supplier country). The foreign supplier will then use the tool to produce relevant products or parts, which are then imported by the manufacturing entity. By successfully reclaiming the VAT portion incurred during this process, manufacturers can cut their tooling costs by up to 27% by reclaiming the VAT portion incurred during this process. 

Supply and install costs

Do you often perform installations or assemblies for clients abroad? Did you know that it is possible to do so without having to register in the country of installation? Moreover, the VAT expenditure on the project can be reclaimed. This does not only include VAT on labour and materials, but also on hotel and subsistence for employees on the project and imports. By recovering the VAT portion of these costs incurred, manufacturers can inject significant cash flow into their business, increase their bottom line and leverage a competitive pricing advantage in a growing industry.  

Transportation and logistics

In the electronic manufacturing industry, it’s common for many electronic products and components to incur transportation costs outside of the client’s registration. These costs include delivery fees for fragile components & parts, including specialized frames, cradles, and packaging used during transportation. In addition, costs could also include expedited transport to meet customer expectations and timelines. Manufacturers deal with a variety of contracting and financial implications, often leaving them out of pocket. However, understanding the impact of VAT on your transportation and logistics costs can help you avoid budgeting pitfalls and ensure maximum VAT savings.

Meetings, events, conferences, conventions & trade shows

Scaling your business requires establishing a foothold in the global marketplace. In order to do so, manufacturers need to be tapped into the latest industry events, trends, and innovations. This often means generating spend toward trade shows, meetings, events, and conferences. Many organizations fall into the trap of writing it off as ‘networking’ spend or hoping to see the return on investment in future business opportunities that could sprout from their once-off events. However, these costs are, in fact, eligible for significant recovery. This includes reclaiming VAT event registration, attendance, transport, and accommodation.

Additional high-value expenses that are VAT recoverable in the manufacturing industry

• Purchase of raw materials for production and assembly of components
• Specialized labelling, packaging, and distribution costs
• Destruction of goods
• Import VAT
• Marketing costs
• Travel and entertainment (domestic & foreign)      

How to get started with the VAT reclaim process

Getting started isn’t as daunting as it seems. Although navigating through a complex landscape may be challenging, it becomes exponentially easier with the right guidance - starting with your internal structure. Here are a few ways you can prepare your business for streamlined and maximized VAT recovery. 

1. Identify the recovery type

Your reclaim process will hinge on the type of expenses you’re trying to reclaim. Before starting the process, it’s important to classify which expenses fall under domestic recovery and which would require foreign recovery. 

2. Review your expense management system

The golden rule of VAT reclaim is in order to reclaim it, you have to see it. Eligible expenses can be found in even the most unexpected places for both domestic and international VAT recovery. However, in order for it to be claimable, it has to be visible from a financial point of view. Therefore, organizations must implement processes that guarantee all invoices are reported into the accounting system.

3. Consider invoicing instructions

Although there is no standardized procedure for VAT-compliant invoicing, there are a few core instructions that help aid the recovery process regardless of the country. This includes:

• Confirming the correct VAT rate has been applied
• Invoices must be made out to your business and not a third party
• Obtain all valid original invoices as per country regulations
• All invoices must contain supplier information (name, address, VAT registration number, etc.)
• Comply with the country-specific VAT treatment, deadlines, reporting requirements, and legislation
  
  

Manufactured for success with VAT IT

Perfect your VAT recovery for both local and international spend without draining your capacity, people, or patience. Our automated VAT solution helps your business recover from gruelling manual reclaim processes while maximizing your reclaim potential. At present, we service over 500 clients in the metal and electronic manufacturing industry and have reclaimed more than €25 million in combined foreign VAT within the manufacturing sector over the past five years. 

Instead of settling for sub-par reclaims, allow the VAT IT network of experts to supercharge your savings with specialized VAT knowledge and experience, helping you identify, assess and maximize your reclaim potential in one fell swoop. In addition, our centralized VAT solution combines human experience with digital accuracy to provide unparalleled spend visibility and account management, all aligned with country-specific legislation and requirements.  

Start your journey to simple, streamlined, and significant VAT recovery with experts by your side who always have you (re)covered. 

VAT reclaim tailor-made for manufacturing.