VAT (Value Added Tax) Refunds / Reclaim for Europe, Japan, South Korea & Australia

Opportunities for VAT Reclaim / Recovery


The documentation for shipping goods across the borders of Europe can be a confusing and daunting task. Companies that ship products from a vendor in one country to a customer in another country using the Incoterm "Ex-Works" are likely to be incurring refundable VAT on the commercial invoices issued by their foreign vendors.

By definition, "Ex-Works" terms define the place where the goods are being taken possession (or where ownership shifts). Terms are typically negotiated with the vendor and designated as "Ex-Works" followed by a location or country.

For example, Ex-Works Milano would indicate that the shift of ownership is taking place in Italy. In this case, Italian VAT would be charged on the commercial invoice, and that Italian VAT would be refundable (or taken input credit for) by the new owner.

It is important to consider whether the use of the Incoterm "Ex-Works" will create a VAT liability in the next country, because the new owner will presumably be selling the goods and will be obligated to charge VAT on that sales transaction.

Branch Office Expenses

Companies that maintain a sales office, branch office or representative office in a foreign country are often incurring unclaimed refundable VAT on the office expenses. Examples of expenses with reclaimable VAT include rent, telephone, temporary staffing, auto leasing and maintenance, and office supplies.

It is common to provide a monthly or annual expense allowance in a local bank account from which these expenses are paid. However, when the expenses are paid locally, the headquarters office would not typically have in its possession, the original invoices required for VAT reclaim. Extra effort must be made to provide the primary accounting offices of the head company with the documentation required to include these types of expenses in the VAT reclaim process.

If the branch or sales office is VAT registered, then the entire home office company is also VAT registered, because, by definition, the local branch is not a separate legal entity.

VAT Invoiced in Error

In general, professional services provided in a foreign country, but invoiced to a head office located in another country, should be zero rated. This is because the "consumption" of the "advice" is taking place where the "customer is located". Examples of these professional services include attorneys, accountants, engineers and marketing / advertising consultants.

However, many small suppliers can be unaware of these tax rules, and may charge VAT erroneously for their services. This VAT is refundable by an appeal to the supplier, rather than a VAT reclaim or input credit. In these cases, however, the supplier is typically able to amend their tax return retroactively three years.

It is important to note that both Canada and Australia also consider "place of supply" to be where the customer is located. So these same professional expenses should be zero rated when invoiced to a company outside their country.

Warrantee Work Performed Abroad

Many countries require that vendors who perform services under a maintenance or warrantee agreement, charge VAT on the cost of their services. This VAT is often refundable to the company bearing the cost of the work performed.

Import/Customs VAT

It is estimated by European tax offices, that 10% of the shipments if goods into Europe are being assessed import/customs VAT in error, due to incorrect or incomplete documentation. It is very difficult to receive a refund of this VAT, especially when an incorrect VAT identification number was associated with the transaction.