The European idea of foreign VAT recovery is rooted in a simple premise: A legal entity that does not conduct business or taxable transactions in a specific country in the EU or the region should not contribute to that country’s national budget.
The legal basis for recovering foreign VAT in EU member states is Directive 8. The directive has been in effect since 1982.
Subsequently in 1997, the EU adopted Directive 13, which promotes the right to VAT recovery from EU member states of legal entities registered outside the EU. This directive has been in effect since 1998.
As a result, Directive 13 is the legal basis for VAT recovery to Serbian legal entities from EU countries.
Both Directives are integral parts of national VAT legislation. EU member states can choose whether they will apply Directive 13 unconditionally or limit its application with the condition of bilateral reciprocity. Most EU countries apply Directive 13 with no conditions.
Using their right to condition Directive 13’s application, some countries — for example, Spain, Slovenia, Croatia, Germany, Hungary, the Czech Republic, Poland, Romania, Bulgaria, and Greece — apply the directive with mandatory reciprocity.