Talking about VAT processes and recovery can often leave many business leaders with a slight lump in their throat. Why? Regarding VAT recovery, there are usually more questions than answers. Either that or organizations keep their fingers crossed that their finance department has it covered. In reality, however, many finance departments and smaller businesses are drowning in administrative tasks and unable to maximize their VAT potential due to a lack of resources, guidance, knowledge or manpower. This is specifically prevalent within the manufacturing industry.
Manufacturers often rely on various global processes and suppliers. However, as their business expands, successfully recovering local and international value-added tax on their expenses often becomes significantly more challenging. But, as the challenges increase, so does the VAT recovery potential. So, to help ease the administrative burden and maximize VAT recovery, here’s a look at what businesses in the manufacturing industry need to know about VAT recovery.
Know which expenses you can reclaim
One of the first things to realize about maximizing your VAT potential is that you’re most likely only scratching the surface regarding eligible expenses that your business can rightfully reclaim. Delving into the industry-specific expenses within manufacturing can give your business a significant boost and competitive advantage, seeing as your saving on costs that your competitors are most likely never seeing again. Most of these high-value expenses are hiding within your foreign VAT potential. If your business deals with international suppliers, here are a few industry-specific costs businesses can potentially recover in the manufacturing sector:
- Tooling and molding costs
- Supply and install costs
- Transportation and logistics
- Meetings, events, conferences, conventions & trade shows
Additionally, typical high-value costs include (but are not limited to) the purchase of raw materials for the production and assembly of components, specialized labeling, packaging, and distribution costs. For more information on the industry-specific recoverable costs, head to our guide on VAT in manufacturing here.
Know where your expenses are taking place
In brief, your entire VAT recovery process deeply hinges on where the expenses occur. Generally, all local expenses fall within your domestic VAT solution and must comply with the country's regulations where you are VAT registered. However, many manufacturing firms have international expenses and overheads from foreign suppliers without being registered in that country. As mentioned above, these expenses also fall within your VAT recovery scope. However, organizations must adhere to the country-specific VAT legislation and processes to successfully claim VAT on these expenses. This differs in each country, and businesses must stay alert to ensure their claims include the correct VAT rates and the country-specific eligibility requirements.
Know your challenges
At first glance, this may seem obvious. However, each industry has its own set of unique challenges that may hinder the VAT recovery process. Businesses need to work with VAT recovery specialists experienced in VAT reclaim for their specific industry and the international and local VAT legislation that applies to them. By understanding the common pitfalls within the recovery process, a business can prioritize their efforts and find solutions that help them mitigate their vulnerabilities and areas of exposure. Some common challenges include:
- A lack of resources to review and assess high-volume invoices
- Lack of knowledge of eligible expenses
- Incorrect invoicing instructions
- Amendments to legislation across the industry VAT scope
Ultimately, specific challenges are part and parcel of reclaiming VAT. However, that does not mean you must settle for them or allow them to drain your resources, time, money and patience. The solution? You’re in the right place.
Browse through our VAT recovery solutions tailor-made for businesses in the manufacturing sector, helping them lift the administrative burden, maximize their savings and scale their business without compromising on compliance.
Claimable countries & VAT rates
VAT potential calculator
Invoice compliance checklist