This article was first published in First Voice.
Content updated October 2024
The UK’s exit from the EU has seen an increase in VAT amounts being charged by overseas suppliers. However, all is not lost, and businesses can often claim back that VAT from the overseas supplier’s tax authority.
Is VAT chargeable in the first place?
This is particularly relevant where you have procured services from an overseas supplier. Brexit seems to have confused overseas suppliers of services and many are charging VAT where they don’t need to. In reality, the place of supply of services from an EU perspective remains largely unchanged. If the cross-border supply is business to business, the place of supply is, generally, where the recipient belongs and the customer would self-account for their country’s VAT on their VAT return using the reverse charge mechanism; receipt of such services from overseas counts towards your taxable income if you are not registered for VAT already. The pre-Brexit exceptions to this rule are unchanged.
For example, if you procure a supply of advertising services from Ireland as a business, the place of supply is in the UK, because that is where you are physically located. The supplier should not charge you either Irish or UK VAT and, instead, you should account for UK VAT under the reverse charge on your UK VAT return. If not yet VAT registered, you must add this purchase to your UK taxable sales when considering your UK VAT registration threshold.
The question often asked is “What is the issue – the supplier will have paid the VAT to its tax authority?” The problem is that, not only can you not claim foreign VAT on your UK VAT return, if you have been charged VAT incorrectly, you are not entitled to claim it back at all. You will need to go back to your supplier and ask for the VAT to be credited and repaid.
The most likely reason why you may have been charged VAT incorrectly is because you, or someone in the business, has not provided the supplier with the business’ UK VAT registration number. A number of the tax authorities will only accept a VAT registration number as evidence that the services have been purchased by a business.
Therefore, the first remedy is to provide a VAT number and ask for the VAT to be credited and repaid. If the supplier will not (or cannot do this due to its local VAT rules), then the only recourse is via the refund system, but you will need to provide evidence that you have tried to obtain the refund from your supplier.
Refunds from other countries
Of the 175 countries with a VAT system or similar (e.g. GST), only a small number have a refund system on a par with the UK and EU and some have more restrictive approaches. Many, including some EU countries, will only refund to countries that have a reciprocal arrangement with them. Many will also require evidence of your taxable status in the UK (VAT66) and some will require you to have a tax representative in that country.
Refunds of VAT from countries in the EU and EEA
The EU operates what is called the “13th Directive Reclaim” scheme. This is available to UK VAT registered businesses that have incurred VAT in most of the EU 27 and the EEA. There are some points to note here, too, before launching into a claim:
- A maximum of five claims can be made in the claim year
- The claim year is usually 1 January to 31 December each year, but some states operate different dates (e.g. Cyprus has a claim year that runs from 1 July to 30 June each year)
- You only have six months from the end of the claim year to submit the claim (the “claim period”)
- There is a minimum claim value of €400 VAT, and a minimum period of 3 months. This reduces to €50 VAT if the claim is submitted in the last two months of the claim period
- The claim is usually paper-based and will often need to be posted or couriered to the tax authority concerned
- Original invoices are usually required but will be returned once the claim is verified (so make sure you take a copy of them before you send them off)
- The form may be required to be completed in the language of the country you are claiming from
- You may need a tax representative in the country to submit the claim on your behalf (over half of member states require a tax representative for anything to do with VAT)
- You must not be carrying out any business in the country and you must not be otherwise registerable there
- The VAT that can be claimed is based on the invoicing rules for the supplier’s country and also on its reclaim rules. For example, not all member states allow invoices to be in employee names or some member states do not allow the VAT on hotel accommodation, transport or subsistence to be claimed
- Incorrect claims could lead to penalties
- There is no requirement for the country to pay interest if it takes a long time to verify your claim.
The EC’s Europa website has some general guidance on such refunds for non-EU businesses on its VAT refunds page and by country in its Country-specific information on VAT page.
Refunds of VAT (or similar) from countries outside the EU or EEA
The refund requirements vary from country to country, but the below gives some examples of the different ways this can work.
Countries with a similar refund system to the UK and EU:
- Bahrain
- Democratic Republic of Congo (tax representative required)
- Japan (tax representative required)
- Jersey
- Korea
- Lebanon
- North Macedonia
- Serbia
Countries that allow a refund of VAT for goods that are exported from their territory:
- Namibia
- South Africa
- Zambia
Countries that allow a refund of VAT relating to trade fairs, exhibitions and certain other temporary buisness activities:
- Taiwan
- Turkey
New Zealand only allows a refund of VAT paid there by a non-established business if it registers for a special VAT scheme.