VAT, or value-added tax, is a mandatory tax that’s placed on every business’s product or service. This VAT tax is almost always at a fixed percentage, though the rate differs from jurisdiction to jurisdiction. For example, the VAT rate in Germany is 19%, while it’s 24% in Greece. On the other hand, some countries like Brunei or the Cayman Islands don’t have any VAT at all.
Namely, the goal of this tax is to collect money on behalf of the government. However, thanks to VAT recovery, a company can receive a portion of the VAT it has paid over the year. Thankfully, this tax recovery is not as complex now as it was in the past since there are many solutions that allow you to increase your VAT recovery potential while staying compliant. Below, we will cover there is about VAT recovery as well as the best practices to maximize VAT returns while staying compliant.
What Is VAT Recovery?
VAT recovery is the process of claiming back the VAT that your company has already paid. This can be done in two ways: through a refund from the government or by offsetting the VAT paid against future tax liabilities.
For example, let’s say your company is based in Germany, and you’ve already paid €10,000 in VAT over the course of the year. When you file your taxes at the end of the year, you can claim a refund from the government for the €10,000 paid, or you can reduce your tax liability by €10,000 for the next year.
Of course, there are some conditions that must be met in order to qualify for VAT recovery. For example, you can only recover VAT if it was paid on business-related expenses. Additionally, you must keep all relevant documentation, such as receipts and invoices, in order to prove that the VAT was indeed paid.
It’s also important to note that not all countries have the same rules when it comes to VAT recovery. Some countries, like the United Kingdom, have a refund system in place for companies that are based outside of the country but make purchases within the UK. Other countries, like Belgium, do not offer refunds to companies that are based outside of the country.
The rules and regulations surrounding VAT recovery can be complex and confusing. However, there are many software solutions that can help you manage your VAT recovery while staying compliant.
Best Practices to Maximize VAT Recovery
There are many ways to maximize your VAT recovery while staying compliant. Here are some of the best practices:
Keep Track of All Invoices and Receipts
This might seem like an obvious one, but it’s important to keep track of all invoices and receipts in order to prove that the VAT was indeed paid. The best way to do this is to create a system where all invoices and receipts are scanned and stored electronically or use an automated solution that will do this for you. This will make it easier to keep track of everything and will ensure that you have all the documentation you need in case of an audit.
Use a VAT Recovery Software
The truth is that there are many software solutions on the market that can help you manage your VAT recovery while staying compliant. Namely, these solutions will automate many of the tasks associated with VAT recovery, such as tracking invoices and receipts, calculating VAT refunds, and even filing VAT returns. By using one of these solutions, you can save a lot of time and energy while ensuring that you’re staying compliant.
Stay Up-to-Date on VAT Regulations
VAT regulations are constantly changing, so it’s important to stay up-to-date on the latest changes. This can be a daunting task, but there are many resources available that can help, such as online forums, blogs, and even software solutions that offer updates on VAT regulations. By staying up-to-date, you can ensure that you’re always compliant and that you’re maximizing your VAT recovery potential.
Final Thoughts
VAT recovery for businesses can sometimes be a complex and confusing process. However, there are many ways to increase your VAT recovery while staying compliant. By keeping track of all invoices and receipts, using software solutions, and staying up-to-date on VAT regulations, you can ensure that you’re maximizing your VAT recovery while staying compliant.
