VAT deduction is a right, not an obligation!


VAT deduction in the light of the regulations

Pursuant to Art. 86 sec. 1 of the Act on tax on goods and services, the taxpayer has the right to deduct VAT provided that the purchased goods and services are used for taxable activities. The entrepreneur may therefore exercise a given right, but is not obliged to do so. If the taxpayer decides not to deduct VAT, he will not be able to include it in business costs, because as a rule, the tax on goods and services is not classified as tax deductible (Article 23 (1) (43) of the Personal Income Tax Act) ). However, the legislator introduces an exception - a tax may be recognized as a tax deductible cost, if there is no right to deduct it and does not increase the initial material and legal value or the value of a fixed asset.

Example 1.

The act on tax on goods and services does not allow for the deduction of VAT on accommodation services. In this case, the cost of obtaining income is the purchase of such services in the gross value of the transaction.

VAT deduction - deadlines

As a rule, the possibility of deducting VAT on the purchase of goods or services applies in the period in which the tax obligation arose on the seller's side, but not earlier than in the period in which the taxpayer (buyer) received the invoice, or in one of the following two. In the case of monthly settlement, this period will in practice cover three months, quarterly settlement will allow for tax deduction during three quarters (an entrepreneur may have up to 9 months for this).

If the entrepreneur forgets to deduct the input tax at that time, he will lose this privilege, but will not bear any tax consequences on this account. In this case, the invoice should be posted in the net value directly to the revenue and expense ledger, and the non-deducted VAT will not be a tax deductible cost.

When can VAT be tax-deductible?

As already mentioned, the non-deducted tax may constitute a cost for the entrepreneur if he is not entitled to deduct it and it does not increase the value of a fixed asset or intangible and legal value (Article 23 (1) (43) of the Act

Pursuant to the currently applicable regulations, when purchasing a passenger car, the taxpayer may choose one of two options for VAT deduction - 100%, provided that it is used only for business purposes and with additional formalities, or 50% if the taxpayer does not want to keep additional records. In the latter case, 50% of the input VAT but not deducted will in principle increase the initial depreciable value of the car.