VAT is Value Added Tax, which is a term used in many countries for sales tax. Per Federal Regulations (2 CFR 200.470 Taxes), departments operating in countries with VAT must document due diligence:
- Identify if there is a VAT exemption negotiated between the US government and the country; and
- Confirm whether any such exemption can be used by recipients (UW) operating in the country; and if so,
- Identify the process in place for the exemption, typically either a waiver provided for payment or reimbursement of VAT paid; and then
- Utilize the VAT exemption.
If a VAT exemption is available to the UW, then VAT is not an allowable expense. If the due diligence documents that such an exemption does not exist, then VAT is an allowable expense. The result of such due diligence must be documented and retained on file.
Any refund of VAT expenditures must be credited back to the funding source used for the initial payment of VAT. For Sponsored Awards, the credit must be applied even if the VAT refund was received after the end date of the Award.