Avoiding Common Pitfalls in Your VAT Refund Claim
Updated: Jul 22
When dealing with VAT refunds for foreign taxable persons in Bosnia and Herzegovina, several common pitfalls can arise:
Misunderstanding of supply made in Bosnia and Herzegovina: There may be confusion about what qualifies as supplies of goods supplied and services rendered in Bosnia and Herzegovina, which is a key criterion for obtaining a refund. This is particularly true when purchasing goods in the country (and selling them). It is crucial to have a clear understanding of what is considered a supply under local VAT regulations. See our practical examples bellow for more information.
Technical errors in invoice lists: Mistakes in the compilation of invoice lists can lead to issues in the refund process. Ensuring accuracy in these documents is crucial.
Misclassification of services: Incorrectly classifying services, particularly regarding the place of supply, can result in complications. Proper classification is necessary to determine VAT obligations accurately.
Misunderstanding of recharges: There may be confusion surrounding recharges and how they should be treated for VAT purposes. Clarity on this matter is essential to avoid errors.
Missing mandatory data: Official documents must include all required data. Missing information can lead to delays or rejection of VAT refund claims.
Real-Life Examples
To help you understand the requirements of the local tax administration regarding VAT refunds, we have prepared several interesting real-world examples in this area.
Example 1: Cost of business conference held in Bosnia and Herzegovina
The VAT refund application was submitted by a tax agent on time, with a complete set of prescribed documentation
The biggest part of the VAT refund is claimed based on invoices from domestic suppliers related to the costs of a business conference held in Bosnia and Herzegovina. The services include: conference hall rental, technical equipment rental, guest accommodation, catering services...
The business purpose of the procured services is "for the business purposes of event organization and event management activities,".
The foreign taxable person (FTP) is registered as a marketing agency and an event organization agency.
The domestic suppliers have reported the VAT from the subject invoices in their VAT returns.
FTP arranged the conference for a client from the same country (both are VAT taxpayers) and billed this service with VAT included.
Key Question:
Does the foreign taxable person have the right to a VAT refund under Article 53 of the Law?
Answer:
The taxpayer is not eligible for a VAT refund on the conference expenses because they re-invoiced the service, with the place of supply located in Bosnia and Herzegovina. As per Article 10 of the VAT Law, this is deemed a service provided by a foreign taxable person. Since this transaction is considered a domestic service within Bosnia and Herzegovina (where the event organization service is provided), the taxpayer does not qualify for a VAT refund due to supplying services in Bosnia and Herzegovina.
Example 2: Purchase of goods (corn)
The VAT refund application was submitted by a tax agent on time, with a complete set of prescribed documentation
The Foreign Taxable Person (FTP) purchased large quantities of corn in Bosnia and Herzegovina (BiH).
The corn seller is a VAT taxpayer; however, they do not have an approved export license and set a condition for the sale: exclusively for the BiH market.
The FTP has an invoice with VAT for the corn purchase and is requesting a VAT refund for it.
The FTP is engaged in the wholesale corn trade business.
The domestic taxpayer is also engaged in the wholesale corn trade business and has duly reported the issued invoice in their VAT return.
The corn in question left Bosnia and Herzegovina, i.e., it was exported by another domestic taxpayer for the FTP, along with the relevant customs documentation.
Key Question:
Does the Foreign Taxable Person have the right to a VAT refund under Article 53 of the Law?
Answer:
As the corn was exported by a different taxpayer from Bosnia and Herzegovina, rather than the taxpayer from whom the foreign taxable person bought the corn, it is considered that a transaction took place between the foreign taxable person and the corn exporter. This breaches the condition for a VAT refund to the foreign taxable person, as it is assumed that the foreign taxable person provided goods to the exporter before the goods were exported.
Example 3: Data processing services
The VAT refund application was submitted by a representative on time, with a complete set of prescribed documentation.
The VAT refund is claimed based on an invoice from a domestic supplier for "data processing services".
The business purpose of the procured services is "for business purposes to ensure the provision of information."
Both the buyer and the supplier are engaged in the business of information providing services.
The domestic supplier has reported the VAT from the subject invoices in its VAT return.
The foreign taxable person is a 100% owner of the domestic taxable person.
A Contract between the parties reveals that the equipment is used to transmit signals from BiH to a satellite owned by the foreign taxable person, while the service cost price is formed based on the equipment maintenance costs.
Key Question:
Does the foreign taxable person have the right to a VAT refund under Article 53 of the Law?
Answer:
The foreign taxable person is not entitled to a VAT refund. It has been determined that, in this specific case, the services fall under Article 15, Paragraph 2, Item 4 of the Law, for which the place of taxation is the customer’s place of establishment. Consequently, the VAT was calculated without legal basis.
Additionally assessed VAT
Foreign businesses are entitled to a VAT refund on services covered by Article 15, Paragraph 2, Item 4 of the Law if the tax department has assessed additional VAT on these services that were initially untaxed.
Disclaimer
This article is intended for informational purposes only and does not constitute legal, tax, or financial advice. While every effort has been made to ensure accuracy, VAT refund regulations in Bosnia and Herzegovina are subject to change and may vary depending on the specific circumstances of each business. Readers are strongly advised to consult with a qualified tax advisor or certified public accountant (CPA) before making any decisions related to export VAT refunds or compliance procedures. Prime Consulting does not assume any responsibility for actions taken based solely on the information provided in this guide.
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