With the dominance of cross-border payments and global workforces, value-added tax (VAT) has become a challenge for businesses worldwide. Imposed in more than 160 countries, VAT must be accurately captured and tracked for companies to qualify for refunds.
While domestic vat reclaims can be relatively painless, cross-border payments are another story. Not only do businesses need to keep track of VAT numbers and specific country details, but they need to have proper policies in place so that they obtain the correct receipts.
In 2018, up to 70% of receipts and invoices did not contain the correct information or were the wrong receipt for the VAT refund application.
However, if you can correctly process VAT information, you can recover a significant portion of your T&E budget.
But before we get into why so many companies struggle with VAT and how to streamline your process, let’s backtrack and focus on what VAT is.
What is Value-Added Tax (VAT)?
VAT is a consumption tax added to a product at every step of its supply chain. This tax is assessed and levied at the manufacturing, distributing, and selling stages. Every country sets its own VAT tax, but the average rate in the European Union is about 20%.
Unlike a flat sales tax, VAT is generally easier to track domestically and it reduces the chance of double taxation.
There are two parts to calculating the VAT plan to reclaim:
- Output VAT – This is the VAT paid on the cost of goods and services.
- Input VAT – In contrast, input VAT is the VAT charges made on other expenses.
If you subtract the input VAT from the output VAT, the remainder is either what you owe or what you can claim as repayable.
It can be difficult to capture, track, and report VAT costs for every single transaction. Considering the fact that every country has its own VAT rates and different rules for reclaims, it’s clear that asking employees to process value-added tax manually would be incredibly time-consuming.
However, if you have finished your VAT registration, you can apply for reclaims, which could save your organization thousands of dollars per year.
Generally, you can reclaim any VAT expense on goods and services bought through the company the business makes standard, reduced, or zero-rated supplies. What you are claiming is a refund on the input VAT.
You cannot reclaim VAT on items that:
- are for personal use
- relate to the purchase of a car
- are used for entertainment expenses
- are used with exempt supplies
There are some exemptions when it comes to purchasing a vehicle. For example, you can claim VAT on the input tax from buying a commercial vehicle, taxis, and fuel for mileage when used for business purposes.
In order to get your VAT returns, you need to have valid supplier invoices that include the VAT. You can reclaim business and travel expenses from items like:
- Conferences and tradeshows, including internal company events
- Drop shipping
- Installation and maintenance
- Import VAT
- Hotel and transportation for business travelers
- Professional, marketing, and telecom services
- Research and development
- TV and motion picture production
To complete a reclaim, you need to send the original VAT invoices to the local tax authorities in the country that processed the VAT payment. For example, if your employee stayed in a hotel in Germany for a conference and you paid VAT for his hotel and transportation costs, you would need to send your claim to the German tax authority.
It usually takes anywhere from 3-12 months to receive your funds, and you will need to submit your claim by June 30th of the following year.
Automating Global VAT Recovery
The only way to scale and ensure accuracy in VAT capture and tracking is to automate the process. Intelligent automation, combined with a solid expense policy, will allow you to focus on high-value tasks while manual invoice matching and data verification work in the background. And instead of wasting days and weeks of shuffling through invoices and paperwork, this process takes a few hours, depending on your volume.
Start with policy
Before implementing an automation solution, it’s critical that your employees understand the business expense policy, what is included, and that they should submit original invoices and receipts to the accounting department.
Implementing a Solution
Next, you’ll want to decide on an automation solution that meets your needs. It should be able to capture rich VAT and sales tax data, cross-check information, and augment content with additional sources.
Since you’ll be capturing this data for reclaims, you’ll want more than basic extraction. It can be helpful to have a platform that also reconciles document data with financial transaction information to support the VAT tracking, reporting, and reclaims process.
Optimizing Your Process
Finally, you’ll want to have a member on staff to keep an eye on your automation tool and make customizations when needed. While intelligent automation uses machine learning to improve its process in real-time, it helps to have someone on hand to review exceptions for potential expense fraud.
Capture and track VAT today
VAT tracking and processing can easily become overwhelming. But the right automation platform can help you push the paperwork aside and focus on strategy rather than data entry.
At Itemize, our AI-powered platform allows you to capture, track, and report VAT data in the global marketplace. To learn more about how you can accelerate your VAT reporting process, book a demo with us today.