Why VAT on tooling is a hidden cost in manufacturing
Tooling costs are an avoidable part of production. Whether it’s injection moulding equipment, cutting machinery or fixtures, manufacturing companies rely on high-value tools to keep their operations running.
However, when manufacturers source tooling from multiple subcontractors across different countries, it results in complex chains of cross-border transactions before the end product is created.
The VAT on tooling can add as much as 27% to overall production costs. For a €1 million tooling investment, that’s €270,000 in VAT – capital that could be otherwise reinvested in R&D, innovation or expanding production capacity.
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 reclaiming VAT on tooling costs
Within the EU and in many non-EU countries, manufacturers may be entitled to recover VAT on tooling costs. However, the process is rarely straightforward. With supply chains that span multiple jurisdictions, VAT recovery comes with compliance hurdles and deadlines that demand close attention.
When handling VAT on tooling costs a number of factors should be considered:
- Compliance exposure: Mismanaging VAT obligations in destination countries and facing penalties
- Financial exposure: Paying VAT that could be otherwise be reclaimed
Key factors manufacturers need to consider
- Local VAT registration: Some jurisdictions require VAT registration in the country where tooling is delivered
- Deadlines: VAT refund claims must often be submitted within strict timeframes (in some cases less than six months after year-end)
- Accurate invoicing: VAT must be charged, identified and documented correctly to avoid rejection of claims.
How Fintua supports manufacturers with tooling VAT
At Fintua, we help manufacturers simplify the complex world of VAT reclaim and compliance on tooling. Our approach covers the full lifecycle:
- Planning: We 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: Our in-house experts stay up to date with evolving VAT legislation across jurisdictions to keep you compliant.
- VAT reclaim: We manage refund submissions globally, ensuring tooling VAT is reclaimed in all countries with a VAT refund mechanism in place
Why manufacturers choose Fintua
Fintua is a global leader in VAT compliance, reclaim and consultancy. We have assisted large and multinational manufacturers from various industries to recover VAT and indirect taxes incurred on tooling, while also providing services in relation to activities carried out in different locations and tax jurisdictions.
Work with indirect tax experts
Navigating global indirect tax doesn’t have to be complicated. At Fintua, our dedicated team brings clarity to compliance. Whether you’re expanding into new markets or streamlining existing obligations. We combine expert insight with tailored technology to support businesses in a digital-first landscape. Whatever the jurisdiction, whatever the challenge – we’re ready.
Authors
Helen Long
As Fintua’s Content Marketing Manager, Helen creates content that helps tax and finance professionals stay informed of the ever-changing world of VAT.
