Contractors' Questions: How to claim back EU VAT if I’m a UK-registered business?

Contractor’s Question: I'm a London-based UK freelance professional represented by an agency (not a recruiter, more of a talent consultancy-type business). But lately I work a lot in Milan, Italy.

How do I maximise my VAT return costs? I ask because I incur a significant amount of expenses but most of them have an Italian VAT number, so I can’t claim them back. Is there a way to get around this?

Expert’s Answer: As a Non-Established Taxable Person (NETP) you can apply for refunds for VAT suffered in your business in Italy. You can find information on this here online.

To be eligible for a refund, the applicant must be a taxable person established in the EU making taxable supplies in his or her Member State (this is known as ‘the Member State of Establishment’). You must have incurred VAT on expenses in a Member State in which you have no establishment (this is called the ‘Member State of Refund’). You must also have made no supplies within that Member State other than reverse charge supplies, or certain exempt transport services, during the refund period. 

You can (and can't) get a VAT refund when...

What can be refunded is VAT relating to business activities carried out outside the Member State of Refund. But only if those activities would be subject to tax or exempt with a right to deduct in the Member State of Refund if they had been made there. Similarly refundable is the VAT where it relates to supplies on which the reverse charge is applicable in the Member State of Refund.

What cannot be refunded is non-deductible VAT (according to the national current rules), and that which is paid by subjects which are carrying out exempt or partially exempt transactions in the country of establishment.

Other considerations

Where the ‘taxable person’ – that’s you -- is only able to deduct a proportion of his or her input tax because you make taxable and exempt supplies, you can only have the amount refunded according to the rules on proportional deduction in your Member State, which in your case is the United Kingdom.

Be aware that the submission of the application is made only online through the portal set up by the Italian Revenue Agency. The applicant’s fiscal administration applies meaning, in your case, 'HMRC 'will apply!. 

Fortunately, the filing can be made by the applicant or by other persons formally authorised by the taxpayer. So both Italian agents and non-resident agents can be authorised to make the e-submission of the application. Non-resident agents can also be authorised for the electronic submission on behalf of foreign businesses. Good luck!

The expert was Kevin Austin, managing director of Access Financial, a contracting overseas advisory.