To better understand the importance of VAT reclaim services, you need to first understand what a value added tax is and how it might affect your business. With this information, you’ll be ready to look at an example of the tax and consider any similarities to your own company. From there, you can determine whether value added tax services might be an appropriate tool for your situation.
What Is a VAT?
Basically, a VAT is a specific type of consumption tax. It is placed on products as value is added both at the stage of production and at the time of the final sale. This type of tax is fairly common in the European Union, but that doesn’t mean the tax won’t affect consumers around the world. To figure the amount of VAT that a consumer pays, take the cost of the product and then subtract the price of any materials used during production that have already been taxed.
An example of this might be an automobile that was built in Germany. The manufacturer would be charged VAT on any and all of the supplies used to build the vehicle. When that car or truck is purchased from a dealer, the consumer would then pay the relevant value added tax. The manufacturer might seek VAT reclaim services to get reimbursement
Don’t be dismayed if you are still confused. Another way to determine whether value added tax services are good for your business is to consider the idea that this form of tax isn’t determined by a consumer’s income, but by the consumption of goods. Essentially, the system is a way to collect tax dollars for government expenses from consumer purchases, rather than from a citizen’s income tax. Many countries around the world are already using this system.
Take a look at another example of this form of taxation. The original manufacturer of a product purchases raw materials. The seller of those materials collects a VAT from the manufacturer in addition to the price of the goods. The seller then pays the VAT to the government. The manufacturer adds value by creating components that are then sold to a new company. When the components are sold for a profit plus an increased VAT, a portion of the new VAT is then paid to the government and the rest is kept as reimbursement for the VAT that was paid to the original seller.
When Reimbursement Comes Slowly
VAT reclaim services may become necessary when buyers who fall earlier in the production chain want to get reimbursed for the VAT taxes they have already paid. When the consumer finally pays the value added taxes, the buyers who paid taxes earlier in the process can seek reimbursement for their expenses. One of the benefits to this type of system is that it encourages businesses to collect tax from the consumers. However, those who oppose the value added tax suggest that this places an unfair burden on those consumers with lower incomes. However, in most countries where this system is in place, the governments offer exemptions for items such as groceries.
How are you affected by value added tax services? Does your company do business with any of companies from countries that use a VAT?