Colombian Companies Fail to Recover VAT Leaving Money on the Table

Colombian companies like businesses around the world have been expanding their reach internationally and into Europe. That makes business travel into the European Union (EU) necessary. With every business trip to Europe, there is Value Added Tax (VAT) involved. Do you know that most of the VAT paid on a business trip to Europe can be recovered by the company?

Many Colombian companies, however, appear to fail to recover the refundable VAT they are entitled to, on their overseas business expenses. This misguided indifference results in millions of euros being left unclaimed annually – funds that could be reinvested in business growth and operational efficiencies.

Let’s study the probable reasons for VAT on business travel not being recovered.

Lack of Awareness: A Major Obstacle

Perhaps one of the main reasons Colombian businesses do not recover VAT is a lack of awareness. Many business leaders or owners do not seem to realize they can reclaim VAT on expenses such as hotels, transportation, conference fees, and business-related purchases. Unlike North American and Asian companies that actively take advantage of VAT recovery, Latin American businesses, especially in Colombia, lag.

Additionally, the complexity of VAT regulations across European countries further discourages companies from exploring this opportunity.

Skepticism Toward VAT Recovery Companies

Colombian companies who may even be aware of VAT recovery opportunities often hesitate to engage professional firms specializing in the recovery process. Many financial officers worry about hidden fees, excessive bureaucracy, or lack of transparency. Some also fear that filing VAT refund claims might attract unnecessary scrutiny from European tax authorities, leading to audits or additional paperwork.

Such skepticism may typically prevent businesses from reclaiming substantial amounts of VAT. However, reputable VAT recovery firms operate on a success-based fee model, charging only a percentage of successfully recovered VAT. Frequently referred to as a contingency fee. A company does not have to pay anything until the VAT is refunded. That’s a win-win situation.

Understanding how to identify trustworthy firms (not a difficult process at all), could alleviate concerns and encourage more companies to act.

Internal Inefficiencies: A Costly Barrier

Many Colombian companies lack streamlined systems for tracking VAT-eligible expenses, making the recovery process more challenging. Common inefficiencies include:

• Poor internal documentation processes: Companies often fail to retain proper VAT invoices and receipts, which are essential for VAT recovery claims.
• Lack of Accountability: Without a person who has been made responsible for VAT recovery, claims will regularly go unfilled, leading to lost opportunities.

Millions Left on the Table

The financial impact of failing to reclaim VAT is significant. Colombian companies doing business in Europe collectively forfeit millions of euros annually. This unclaimed money represents a missed opportunity for reinvestment in business expansion, innovation, and operational improvements.

For example, a company that spends €50,000 EUR annually on European business travel could be eligible for VAT refunds of up to 20-25%. That could potentially lead to a recovery of up to €12,500 EUR per year. Over time, these lost refunds add up to considerable amounts of lost capital.

By educating company teams, leveraging technology, and seeking professional guidance, businesses can reclaim substantial funds that are rightfully theirs

Steps to Maximize VAT Recovery

• Engage professionals: Partnering with reputable VAT recovery firms can simplify the process and maximize refunds.
• Educate finance teams and travelers: This is often handled by VAT recovery companies. They create information leaflets. It will be good for nominated people from the company’s finance department to learn more about VAT refunds. Additional knowledge can be acquired as the company moves ahead with the process.
• Establish internal protocols: Businesses should create clear policies for collecting, reviewing, and submitting VAT-eligible receipts and invoices.
• Stay updated on regulations: European VAT regulations vary country by country and change periodically. Staying informed ensures compliance and maximized recovery. Again, a VAT recovery company’s account manager will keep contacts in the finance department updated.
• Leverage technology: It would, of course, be an advantage to implement digital expense management solutions. It would ensure accurate tracking and documentation of VAT-eligible expenses. Technology could assist greatly but is not needed for the process. Small and Medium Businesses (SME), can easily recover VAT as well.

In Conclusion

Colombian companies must shift their perspective on VAT recovery – from viewing it as a complex and troublesome process to recognizing it as a strategic financial opportunity. Barriers such as awareness gaps, distrust, and inefficiencies continue to persist, but they are not insurmountable. By educating company teams, leveraging technology, and seeking professional guidance, businesses can reclaim substantial funds that are rightfully theirs.

With Colombian-European business relations expanding year-on-year, ignoring VAT recovery is no longer an option. Companies that fail to act are leaving money on the table. Recognizing and addressing this issue can lead to significant financial benefits, making VAT recovery an essential strategy for long-term business success.

Headline Image Credit: Mano Chandra Dhas.