VAT Refund Reciprocity Guide

Introduction

It’s important to understand the meaning of reciprocity in the context of international VAT refunds. Therefore, we’ve written this guide to make navigating the ins and outs of reciprocity easier for you. We’ll explain what reciprocity is and provide a list of international reciprocity relationships.

What is Reciprocity?

In brief, the principle of reciprocity is a give-and-take relationship. Within the context of foreign VAT, reciprocity dictates which countries can claim a VAT Refund from which other countries. In other words, foreign VAT refunds are granted if a country gives corresponding refunds.

Interestingly, reciprocity exists in a variety of different tax contexts outside the scope of VAT reclaim. For example, our sister company Wtax, abides by double tax treaty laws to achieve dividend withholding tax refunds.

Reciprocity within the EU

The EU VAT refund directive (known as the 8th Directive) was built to allow reciprocity freedom for all EU member states. For example, this allows an Austrian company to claim VAT easily from their neighbouring country, Germany. In short, all EU member states allow each other to claim from their respective VAT authorities.

Reciprocity outside the EU

Many EU countries allow businesses that are registered in non-EU countries to claim without applying reciprocity. However, some EU VAT authorities have implemented reciprocity as a formal requirement in which to claim a VAT refund. In these cases, claimants are unable to claim a VAT refund unless a reciprocity agreement has been concluded by the respective states. For example, Austria allows all country across the globe to claim foreign VAT: Romania, in contrast, only allows a few countries outside the EU to claim a VAT refund.

The above principle also applies in the case of non-EU countries. There are non-EU countries that grant VAT refunds with and without applying reciprocity as a requirement.  Like the EU VAT authorities’ laws, reciprocity outside the EU is also based on a tit-for-tat principle. This means that your country can only claim from a VAT refund from a non-EU VAT authority if your country allows the same. For instance, whereas Iceland (a non-EU country) allows all countries across the globe to claim, the United Arab Emirates applies reciprocity as a requirement to claim a VAT refund. The UAE reciprocity laws are based on which countries allow them to claim from their VAT authority and in return they allow that country to claim from them.

As can be seen, the principle of reciprocity plays an integral factor when seeking out VAT refunds from foreign countries. Ultimately, understanding reciprocity and how it works will help you maximise your efforts in recovering VAT successfully.

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