Reclaim VAT on Employee Expenses

September 5, 2025

5 min read

21% of Businesses Unable to Recover Cross-Border VAT: According to an OECD study, nearly 21% of businesses are unable to recover any of the cross-border VAT they incur on business expenditure, primarily due to complex reclaim policies and procedures
A study by Taxback International highlights that companies are overlooking billions of dollars (€26.6 billion) in potential refunds annually.

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Quick Read

Summary generated by AI, reviewed for accuracy.

Businesses can recover VAT paid on employee costs like travel, hotels, and training, provided the expenses are strictly for business purposes and supported with valid VAT invoices.

Non-EU companies can reclaim VAT on eligible expenses in VAT-registered countries by meeting local rules, maintaining proper documentation, and submitting claims within the required period.

But why are so many organizations missing out on money they are legally entitled to recover? The truth is, VAT recovery can be complex, and many businesses either lack awareness or struggle with compliance requirements.

In this guide, we’ll break down how VAT works, why companies often fail to reclaim it, and the steps non-EU businesses can take to recover VAT on employee-related expenses. Let’s get started!

What is VAT and How Does It Work?

Value-Added Tax (VAT) is a consumption tax applied to goods and services at each stage of the supply chain—from production to distribution. Instead of being added separately, VAT is usually built into the final purchase price that customers pay.

When a business charges VAT on its products or services, it acts as a collector on behalf of the tax authority rather than keeping it as income. The supplier or retailer gathers the tax from buyers and then forwards it to the government. In this way, VAT ensures transparency and traceability of tax contributions throughout the business process.
VAT is destination-based, meaning the rate depends on the country where the expense is incurred.

Today, more than 160 countries operate under VAT systems, with the majority spread across the European Union (including the UK).

Rates differ by region—typically ranging from 15% to 25%. For instance, the UK applies a 20% standard VAT rate.

Reclaiming VAT on Employee Expenses: A Guide for Non-EU Businesses

VAT is generally intended for residents and companies operating within the country that charges it. Since visitors are not the final consumers, many governments allow foreign businesses to reclaim VAT paid on eligible expenses.

For non-EU organizations, this means you can recover VAT on business travel and employee-related costs incurred within EU member states. For instance, if an employee books a hotel room during a business trip, the VAT charged on that accommodation can be reclaimed.

The specific categories of expenses eligible for refunds differ from country to country, as each nation sets its own rules and restrictions. Some may allow recovery on hotels and transport, while others exclude meals or entertainment. Understanding local legislation is key to maximizing refunds.

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Common Types of Expenses Eligible for VAT Reclaim:

Work-related travel such as flights, hotels, and local transport.

Training programs or seminars attended by employees for professional purposes.

Export-related costs linked to goods and services sold outside the country.

Trade shows, exhibitions, and conventions attended for business growth.

Invoices from suppliers covering goods or services purchased.

Other legitimate business expenses that meet local VAT rules

When Should You Care About VAT?

You should keep VAT in mind if:

Your company is based outside the EU but serves multiple international clients.

Your employees travel for work to countries where VAT applies and is strictly regulated.

What to Know Before Reclaiming VAT on Employee Expenses

Non-EU businesses must meet certain conditions to qualify for a VAT refund. These include:

The company cannot already be VAT-registered in the country where the refund is requested.

It must not have a permanent office, branch, or place of business in that country.

The business should not be supplying goods or services locally within that country.
Before submitting a claim, double-check that your organization meets these requirements. Missing even one criterion can lead to delays or rejection of your refund application.

Eligibility Rules for Reclaiming VAT

Businesses can recover VAT on costs incurred in countries where VAT is charged, but eligibility is not automatic. Before filing a claim, companies need to confirm that the expenses qualify under local regulations. It’s also important to gather the correct paperwork, such as invoices that clearly show VAT charges.
Being well-prepared with the right documentation and understanding each country’s rules can make the reclaim process faster, smoother, and less stressful.

Expenses That Are Not Eligible for VAT Reclaim

VAT refund rules vary from country to country, so what’s recoverable in one nation may be blocked in another. For instance, some jurisdictions restrict VAT recovery on items like fuel or hotel stays.

While specific restrictions differ, some common types of expenses that cannot be reclaimed include:

Personal costs such as meals, local transport, or lodging not related to business.

Business entertainment expenses, including client dinners or recreational events.

VAT-exempt goods and services, for example, insurance policies or certain medical services in countries like the UK.

Understanding these limitations beforehand helps avoid rejected claims and ensures compliance with local VAT laws.

Items Needed to Reclaim VAT on Employee Expenses

To recover VAT on employee-related expenses, a company must provide proper evidence of the costs. This typically includes a VAT invoice or receipt showing that the purchase or service was strictly for business purposes.

For an invoice or receipt to be valid, it must be issued by a VAT-registered supplier and include:

Date of purchase

Supplier’s business name and address

Supplier’s VAT number

VAT amount

Customer’s name and address

Total purchase value

Pro Tips:

VAT can be reclaimed from both EU and certain non-EU countries.
Submit receipts in the local currency of the country where the expense occurred.
VAT is part of the total expense price, but the VAT portion is always shown separately on invoices.
Invalid proof includes supplier statements, delivery notes, payment requests, or pro forma invoices.

Steps to Reclaim VAT on Employee Expenses

Confirm eligibility
non-EU companies must meet specific requirements, such as not being based or registered in the VAT country and having no local business presence or manufacturing operations there.
Collect valid proof of purchase
Ensure that invoices clearly document all necessary details supplier name, VAT number, purchase amount, and date.
Pro Tip: Missing or incomplete invoices can result in claim rejections, so make sure all records comply with the country’s VAT rules.

Calculate VAT to be reclaimed
Keep organized records of all VAT-related expenses. Calculate the VAT portion on each invoice and confirm that it is recoverable according to local regulations.
Submit your VAT refund application
Once all criteria are met, submit your reclaim application to the relevant tax authorities within the required VAT period. Approved refunds are returned by the local tax office; if rejected, additional documentation may be requested.
Pro Tip: Electronic submissions are often allowed and should generally be completed by September 30th.

Challenges in Reclaiming VAT on Employee Expenses

Varying VAT rules: Each country has unique tax laws and rates, which can make managing multi-country claims complex.

Incomplete documentation: Missing or incorrect receipts can prevent VAT recovery. Properly capturing all necessary details is crucial.

Hidden costs and effort: The process may require frequent communication with tax authorities and a strong understanding of taxation rules, making it time-consuming and resource intensive.

Successfully Recovering VAT on Employee Expenses

Reclaiming VAT can be a complex and time-consuming task, especially for companies operating in multiple countries. VAT rates vary—from as low as 5% to as high as 25% so unclaimed VAT can significantly impact finances.

A robust expense management solution can simplify this process. Expense Tracker 365 helps businesses track receipts, manage invoices, and maintain compliance, making it easier to recover foreign VAT while avoiding errors and losses.

Tips to Maximize VAT Recovery:

Claim refunds you are entitled to

Document all VAT-related expenses thoroughly

Integrate VAT management into your business workflow

Avoid penalties and maximize refund potential

Whether your employees travel to Germany for a conference or to the UK for business meetings, maintaining proper records is key. Expense Tracker 365 goes beyond simple receipt tracking—it helps streamline global business expense processes efficiently. Schedule a demo today to see how it can benefit your organization.

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Frequently Asked Questions

What is VAT on employee expenses, and who can reclaim it?

VAT on employee expenses is the value-added tax paid on costs incurred by employees for business purposes, such as travel, accommodation, or training. Non-EU businesses and companies operating in VAT-registered countries can reclaim eligible VAT if they meet the local requirements.

Which employee expenses are eligible for VAT recovery?

Common eligible expenses include business travel, hotel stays, professional training, supplier invoices, and event participation costs. Each country may have specific rules, so it’s important to check local VAT legislation.

What documentation is required to reclaim VAT?

To reclaim VAT, companies must provide valid VAT invoices or receipts showing the supplier’s details, VAT number, purchase date, VAT amount, and proof that the expense is for business purposes. Other documents like delivery notes or pro forma invoices are usually not accepted.

Are there any expenses that cannot be reclaimed?

Yes, certain costs cannot be reclaimed. These typically include personal expenses, business entertainment, and VAT-exempt goods or services (e.g., certain medical services or insurance). Always review local rules before filing a claim.

How can companies simplify the VAT reclaim process?

Using an expense management solution like Expense Tracker 365 helps track receipts, calculate VAT amounts, and organize claims according to local rules. Proper documentation and automated tracking increase the chances of successful VAT recovery while saving time and effort.