- VAT Registration Requirements: Most businesses must register for VAT to qualify for refunds, with specific registration thresholds varying across EU Member States. Non-resident businesses face a “nil” threshold, meaning they must register for VAT as soon as they conduct any trade in the respective countries, which can create administrative burdens. The EU has introduced measures like the One-Stop Shop to alleviate these challenges.
- Reclaiming VAT: Businesses can reclaim VAT when the total VAT charged on their purchases (Input Tax) exceeds the VAT charged on their sales (Output Tax). However, VAT can only be reclaimed if it relates to business activities. EU businesses can use the EU VAT Refund Scheme (8th Directive) for refunds, while non-EU businesses must follow the 13th Directive. Each Member State has different procedures and requirements for submitting refund claims.
- Foreign VAT Refund Scenarios: EU businesses can reclaim VAT incurred in Member States where they do not habitually supply goods or services, provided they meet specific criteria. Non-EU businesses can also claim refunds under similar conditions but may face additional restrictions based on their country of establishment. Non-EU tourists may reclaim VAT on goods purchased in the EU, subject to proof of residence and other conditions. The refund process can be complex, necessitating careful adherence to procedures to avoid audit issues and denial of claims.
Source VAT IT Compliance
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