Did you know that some European Tax Authorities allow foreign businesses to get a refund of Value Added Tax (VAT) incurred during MICE and business travel?
Services that can be reclaimed vary by country but normally include hotel, accommodation, exhibition costs, venue hire, equipment rental, entrance tickets, transportation and meals.
Generally, U.S. companies are eligible to recover VAT in the following countries:
Austria, Belgium, Denmark, Finland, France, Germany, Iceland, Ireland, Luxemburg, Malta, Monaco, Montenegro, the Netherlands, Norway, Spain (only for the participants of international congresses and trade shows), Sweden, Switzerland and the United Kingdom.
Importantly, all of these countries allow VAT recovery for foreign businesses that purchase MICE services directly from local suppliers (hotels, venues, exhibition organizers, restaurants, etc.).
However, if services are booked through a travel agency, DMC or another intermediary who actually signs a contract with a European supplier, there is a risk that VAT won’t be reclaimable.
This is due to the Tour Operators’ Margin Scheme (TOMS) adopted in Europe. This special scheme comes into effect when an intermediary on-sells travel services, such as accommodation, transport, admission fees, guided tours and any additional items. In this case, input VAT charged by a local supplier is blocked from recovery. This could represent a significant loss to a U.S. company, as accommodation often comprises the biggest expense chunk and VAT rates reach 25% in some EU countries.
The great news is that it’s possible to re-structure your upcoming M&E transactions and contracts with suppliers. This will enable a fully compliant VAT refund for the recipient of the services.
All you need to do is make appropriate changes in advance and prepare the correct paperwork. MICE VAT has been successfully helping foreign companies reclaim VAT in some of the most complex MICE projects.
Once you make sure VAT is claimable, there is a special process to follow in order to get foreign tax back. Consider the following:
- First of all, it’s critical to meet the deadlines. In most cases, a VAT refund application must be submitted to European Tax Authorities before June 30 of the following year. In other words, if VAT is incurred in 2020, the deadline would be June 30, 2021. In the UK, however, the deadline would be December 31, 2021 for the VAT incurred between July 1, 2020 and July 1, 2021.
- Must-have paperwork includes original supplier’s invoices, a recent Form 6166 (or a special ‘VAT66a Form’ to reclaim tax from the UK) and a VAT refund application developed by each country. The application form must be completed in the local language. It’s hard to underestimate the importance of correct documentation to secure a VAT refund.
- Once the application is reviewed by a tax office, they often raise additional questions related to the nature of expenses or request extra documents, such as contracts with suppliers and proof of payment. The query is sent by recorded delivery and normally has a deadline of one month to respond.
- Though general principles of VAT refund are the same across all Europe, each country has its specific regulations. Knowing them is important for a smooth recovery. For example, the UK allows one to reclaim VAT on incentive trips for a company’s employees, whereas VAT paid on a business event for clients won’t be refundable. At the same time, France forbids VAT refunds on accommodation for employees, but allows the recovery of VAT on accommodation for external guests.
It’s not always obligatory to appoint a local tax representative, but doing so may help you avoid some painful mistakes, which could lead to the full or partial rejection of your application.