VAT refunds: brief guide

This blog deals only with refunds for cross-border transactions – where the VAT is incurred by people or businesses not based in the EU country concerned. It does not address the “standard” situation of VAT refunds where both vendor and customer are based in the same country.
 
For refunds, we need to distinguish between 3 different situations:
 
    • Cross-border VAT refunds to EU businesses
    • VAT refunds to non-EU businesses
    • VAT refunds to foreign tourists
 
 

       1. Cross-border VAT refunds for EU businesses

Most businesses who incur VAT in connection with their activities in an EU country where they do not habitually supply goods/services (and so are not required to register for VAT) are nevertheless entitled to deduct that VAT. This ‘deduction’ is made by means of a refund from the EU country where they paid the VAT.
 

How to get a VAT refund

To avoid potential language problems, claimants send an electronic refund claim to their own national tax authorities – who then forward it to the EU country where the claimant incurred the VAT (once they have confirmed the claimant’s identity and VAT identification number, and the validity of their claim).
 
If the tax authorities in the EU country where they incurred the VAT are late in making the refund, claimants are paid interest.
 

Who can get a VAT refund?

To qualify for a refund under this procedure, during the refund period a business mustNOT have:
been based in the refunding EU country or supplied goods or services there – except:
    • exempted transport & ancillary services or
    • supplies to customers liable for payment of the related VAT under the reverse-charge mechanism.

The claimant’s home EU country will not forward the claim to the refunding EU country if the claimant:

    • is not a taxable person for VAT purposes
    • only makes exempt supplies without right of deduction
    • is covered by the special scheme for small businesses
    • is covered by the flat-rate scheme for farmers.

 

        2. VAT refunds for non-EU businesses

Businesses not based in the European Union who incur VAT in connection with their activities in an EU country where they do not habitually supply goods/services (and so are not required to register for VAT) are entitled to deduct that VAT. This ‘deduction’ is made by means of a refund from the EU country where they paid the VAT.

How to get a VAT refund
Claimants must send an application to the national tax authorities in the EU country where they incurred the VAT.

Who can get a VAT refund?
To qualify for a refund under this procedure during the refund period a business must NOT have:

    • been based in any EU country or territory or
    • supplied goods or services in the country where they incurred the VAT – except:
    • exempted transport & ancillary services 
    • services to customers solely liable for payment of the related VAT under the reverse-charge mechanism.

EU country-specific conditions
Any EU country may:

    • refuse to refund VAT in this way if the claimant’s country/territory does not grant reciprocal refund rights for VAT or similar to businesses based in that EU country.
    • impose restrictions on the type of expenditure qualifying for refunds
    • insist that the claimant appoint a tax representative.

 

          3. VAT refunds for non-EU tourists

EU retailers can provide a VAT refund for goods sold to non-EU tourists when exporting them. Specifically this covers:

    • Tourists whose permanent address or habitual residence (as stated in their passport or other recognised identity document) is not in the EU.
    • EU nationals living outside the EU (who can prove this with a residence permit or similar).

Conditions

    • The tourists must provide proof of residence (e.g. non-EU passport or residence permit)
    • The goods must be taken out of the EU within 3 months of being bought. The tourist must provide a stamped VAT refund document proving this.
    • The value of the goods bought must be above acertain minimum (set by each EU country).
    • Retailers can either refund the VAT directly or use an intermediary. One or other of them may charge afee, deductible from the refunded VAT amount.

If you are charged VAT on business activities in an EU country where you are not established, you may be entitled to have the VAT refunded by the authorities in that country.