There are three ways for your business to get a VAT refund in the European Union: On your VAT return, EU VAT Refund Scheme, and 13th Directive reclaims. Which you can use will depend on where your business is based and whether your business is registered for VAT.
How do VAT Refunds work?
The first thing to clarify is what VAT is and the two types of VAT: Input and Output. Value Added Tax (VAT) is a consumption tax used across Europe and in the EU. It’s applied at every stage of a product’s production and distribution. When you buy something in Europe, it’s likely that you’ll be paying VAT on that purchase.
Output VAT is the VAT you charge your customers and pass to a tax authority. For example, you’re registered for VAT in Italy and sell an Italian customer EUR 200 worth of cosmetics. You add 22% VAT to the price. Your customer pays you EUR 244, and you pass EUR 44 to the Italian tax authority.
Input VAT is VAT that your business pays when it purchases something or imports goods into the EU. For example, you need more boxes to ship your cosmetics in, so you purchase some from an Italian supplier. You spend EUR 610, EUR 110 of which is VAT.
You can only get a VAT refund for Input VAT (unless you’ve incorrectly overpaid Output VAT). There are three ways to do it: through your VAT return, the EU VAT Refund Scheme, or a 13th Directive Reclaim. Which option you can use depends on your location and whether you’re registered for VAT in the country where you want a refund.
Usually, being registered for VAT is a requirement for getting a refund. That makes refunds via VAT returns the most common method. However, if you’re not registered in the country where you’re requesting a refund, you can use an EU directive instead. EU-based businesses can use the EU VAT Refund Scheme, and non-EU businesses can use the 13th Directive.
13th Directive VAT Refunds
Companies not based in or registered for VAT in the EU are still entitled to VAT refunds. This process is a 13th Directive VAT Refund. To get a 13th Directive refund in a country, you must:
– Not be established in that country
– Not be registered for VAT there
– Have paid the VAT on professional expenses or purchases
– Have purchased goods or services that qualify for a VAT refund there
– Be established in a country that has tax reciprocity with that country
Some countries require you to appoint a fiscal representative to apply for a VAT refund. They must be established in the country where you’re applying for the refund. They’re legally responsible for ensuring you meet the requirements. If you’re in the UK, you’ll need a VAT66. It’s a certificate that proves your UK trading status. It can take up to 5 weeks to get it from HMRC.
There is a deadline, a limit on claim submissions and minimum amounts you can claim for. Each EU country sets its deadlines, limits and minimums. It’s hard to confirm these details, so we’re outlining how it usually works. If you want a 13th Directive Refund, one of the VAT consultants on our team will confirm the details with you.
Depending on where you’re claiming a refund, the deadline for submitting a claim is usually the 30th of June or the 30th of September of the year following your purchase. For example, you order materials in July 2024. You have until the 30th of June or September 2025 to claim the VAT on that transaction.
Typically, the minimum amount you can claim changes depending on what period you’re claiming for. For less than a year, the minimum is usually EUR 400. For a year, the minimum drops, typically to EUR 50.
EU VAT Refund Scheme
Companies based in the EU can get VAT refunds from other EU countries, without being VAT registered there. This process is an 8th Directive VAT Refund. You can use the EU VAT Refund Scheme if your business:
– Is registered for VAT in its country of establishment, but not in the country where you paid the Input VAT
– Have no taxable transactions in the country where you paid the Input VAT (i.e you didn’t sell anything to a customer there)
– Has no fixed establishment in the country where you paid the Input VAT
The deadline to apply for an 8th Directive refund is the 30th of September in the year after you paid the Input VAT (except in Cyprus, where it’s the 30th of June). For example, you made a purchase in June 2024, so you have until September 30th, 2025, to apply for a refund.
You can apply for refunds up to five times a year. You can apply for one annual claim, two bi-annual or four quarterly, or a mix. Every EU country has a minimum amount you can claim for in a set period. Typically, it’s EUR 400 for a period of less than a year, and EUR 50 for annual claims.
Getting a VAT Refund through a VAT Return
Your VAT return will show how much Input VAT you’ve spent and how much Output VAT you’ve collected. If your Input VAT is higher than your Output VAT, you might be able to get a refund on the difference. When your Output VAT is higher than your Input VAT, you deduct your Input from the Output and pay the Tax Authority the difference.
Whilst on paper, you can get excess Input VAT refunded to you, in practice, it can be quite a different story. Most Tax Authorities prefer to carry the excess forward to your next tax period, rather than refund the money. It’s common for there to be administrative barriers to getting a refund. For example, Polish VAT refunds require you to have a Polish bank account. If you’re not based in Poland, you’ll need to travel to Poland to instruct a lawyer to prepare the bank application and instruct a notary to verify your documents. You’ll then have to formally open the account and sign the documents in person. In the past, this process has cost clients of ours about EUR 3000.
Poland is only one example, and although it can be tricky, it’s definitely possible to get a VAT refund in Europe. Knowing what the refund situation in a country is like will help you make strategic buying decisions. For example, if you’re planning a large purchase, you might want to consider a supplier in a country where you’re already VAT registered.
