What are reciprocity agreements and why do they matter?
- Reciprocity Agreements and Their Importance:
- Reciprocity agreements play a crucial role when making 13th Directive VAT refund claims.
- Each EU Member State has different rules and conditions for VAT refunds.
- One of the conditions that EU Member States may require is a reciprocity agreement.
- A reciprocity agreement ensures that VAT is refundable only when a similar tax is refundable for local businesses in the applicant’s country.
- Pre-Brexit and Post-Brexit Scenarios:
- Before Brexit, UK businesses could make VAT refund claims through the EU VAT Refund Directive (8th Directive).
- Post-Brexit, the UK falls within the 13th Directive Refund Scheme as a non-EU business.
- The Free Trade and Cooperation Agreement between the UK and EU does not specifically address reciprocity in VAT refund claims.
- Current Reciprocity Agreements:
- Official announcements regarding reciprocity agreements with the UK have been made by Germany, Italy. Spain, and Hungary.
- Ongoing discussions exist between the UK and other EU Member States.
- HMRC (Her Majesty’s Revenue and Customs) states that they will refuse a claim only if the reciprocal country has a scheme for refunding taxes but refuses to allow UK traders a refund.
- HMRC is willing to allow VAT recovery in the UK for EU businesses, provided UK businesses receive the same treatment as the EU.
- Importance of Reciprocity:
- Most EU Member States require reciprocity when making VAT refund claims.
- Businesses should review reciprocity requirements and not assume automatic approval.
With which countries concluded the UK a reciprocity agreement?
- Estonia
- Germany
- Greece
- Hungary
- Italy
- Agreement applies retroactively from 1 January 2021
- Latvia
- Poland
- Portugal
- Romania
- Spain
Countries not requiring a reciprocity agreement
- Belgium
- Denmark
- Luxembourg
- The Netherlands
- Norway
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