VAT on tooling can add 27% to production costs.
Why is VAT on tooling so complex?
Tooling costs are incurred when acquiring components and machines needed for production, such as injection moulding, cutting equipment or fixtures. Manufacturing companies often use different subcontractors in multiple countries, resulting in complex chains of cross border transactions before the end product is created.
The VAT on tooling may represent up to 27% of costs. When you combine this with the compliance risks associated with stepping into unknown tax territories, VAT on tooling becomes a complex and costly area.
The challenge of VAT on tooling costs.
Within the EU and in a number of non-EU countries, VAT on tooling costs may be recovered. However, handling VAT on international trade and managing compliance between multiple countries with changing regulations is a challenge which requires significant human and technical resources on an ongoing basis.
When handling VAT on tooling costs a number of factors should be considered:
- Compliance with local regulations (VAT registration in destination countries may be required),
- Respective VAT deadlines must be adhered to (these may be less than 6 months after the end of the year in which tooling costs were incurred).
How we make a difference to your VAT collection process
Taxback International has over 20 years experience assisting large and multinational manufacturers, as well as small and medium enterprises from various industries to recover VAT and indirect taxes incurred on tooling, while also providing VAT compliance/consultancy services in relation to activities carried out in different locations/tax jurisdictions.
Steps to ensuring VAT is charged and identified correctly
- Planning: Taxback International provide consultancy on the correct way to handle foreign VAT on all projects with tooling VAT occurrences. We consider the full place of supply road map for each project, assessing every possible scenario for cross border transactions and advise of any arising VAT obligations,
- Compliance: Cross border VAT transactions require detailed up-to-date knowledge of destination country regulations. Taxback International provide VAT/indirect tax compliance services to world-leading multinationals from a range of industries in a number of jurisdictions abroad,
- VAT Reclaim: Taxback International can provide VAT recovery in all countries with a VAT refund mechanism in place.