As a European e-commerce entrepreneur, it is important to know how to reclaim VAT. By following the VAT refund process, you can optimize your financial resources and ensure tax compliance. That way you can get the most out of your business.
Refresher: what is VAT?
Value added tax (VAT), also known as sales tax, is an indirect tax levied on the sale of goods and services. This tax is applied to each step of the production and distribution process and is ultimately paid by the end customer. In Europe, VAT rates vary by country. They are generally divided into standard, reduced and zero rates, though, depending on the type of good or service.
Each transaction in the supply chain incurs VAT on the value added at that point. This means that each seller in the chain pays VAT on its purchase price and levies VAT on its selling price. The entrepreneur can deduct the VAT paid from the VAT collected and must remit the difference to the tax authorities.
The VAT system is designed to be transparent, neutral and reduce tax evasion by being levied at every step of the economic chain. It also provides an important source of revenue for governments, which is used for public services and infrastructure.
When can you reclaim VAT?
As an e-commerce entrepreneur, you can reclaim VAT paid on business expenses and investments. This is possible if you yourself also provide products or services subject to VAT. The conditions and rules may vary from country to country, but here are some general situations in which you can reclaim VAT:
- Business purchases: when purchasing goods or services for your business.
- Business travel: VAT on travel and accommodation expenses for business purposes.
- Import and export: when trading with companies in other EU countries or outside the EU.
How does reclaiming VAT work?
Step 1: check the terms and conditions
Make sure you meet the conditions for reclaiming VAT. You must be registered as a VAT entrepreneur and the expenses must be business related.
Step 2: gather the necessary documentation
Be sure to collect all necessary documents, such as invoices and receipts. These documents must list VAT separately and comply with legal requirements.
Step 3: filing a VAT return
File timely VAT returns through the Tax Office’s digital portal. Here you enter how much VAT you paid and how much you owe. The difference between these amounts is the amount you can claim back.
Step 4: receive refund
After filing your return, the Internal Revenue Service will assess your refund. If everything checks out, you will be refunded to your account. This process can take several weeks to months, depending on the complexity and completeness of your application.
Frequently Asked Questions
Can I reclaim VAT for all business expenses?
You can reclaim VAT for most business expenses, but there are exceptions, such as entertainment expenses or expenses used for both business and personal use. Consult the specific rules in your country.
How long does it take to get VAT back?
The time it takes to recover VAT can vary. In the Netherlands, tax authorities strive to process refunds within a few weeks to months of the return.
What if I trade with other EU countries?
You can use the OSS (One Stop Shop) scheme to declare your VAT for multiple countries at once, which makes it a lot easier. However, you cannot reclaim VAT with this arrangement. You will have to reclaim the input tax via filing regular, national (local) VAT returns in the respective countries or a refund procedure.
Need help with European VAT?
VAT complex are for e-commerce entrepreneurs, especially if you sell across the border. We’ve thought of something for that: a fully automated solution, which calculates down to the penny how much VAT you have to pay in each European country. And then we can also take over the VAT registrations and returns from you. That way you never have to look back at your compliance.
Want to know what we can do for your business? Through this link you can schedule a (free) introductory meeting!
Nb. We also offer EPR services from now on. For example, if you sell in Germany, you need a VerpackG and possibly other registrations. Contact us at the link above for options.
