Deductions for Value Added Tax - VAT
You can claim a deduction for VAT you've paid. This applies only for enterprises that are registered in the VAT Register. If you sell goods and services that are exempt from value added tax, you're also entitled to a deduction.
In order to be entitled to a deduction, the following criteria must be met:
- The goods and services must be used in the enterprise
- The seller has calculated VAT on the good or service
- VAT must be stated on the receipt (or other sales document)
- You must be able to show the sales document when asked
- The enterprise must be registered in the VAT Register
The right to a deduction does not apply when:
- You have purchased something that's for private use
- You have purchased something that's for use in an enterprise with turnover that's exempt from the Value Added Tax Act
VAT on goods and services you purchase is called input VAT.
There are a few more exeptions from the right to a deduction. These are defined in section 8-3 of the Value Added Tax Act.
Partial right to VAT deduction
If your enterprise carries out activities that fall both within and outside the Value Added Tax Act, and you purchase goods or services for use in both areas of the enterprise, you'll only receive a partial deduction for such purchases.
You then receive a deduction based on how much of the good or service is used in the area of the enterprise subject to VAT.
Example of partial right to deduction
You teach music and sell musical instruments to your students. You purchase a copy machine for use in the enterprise. You can only claim a deduction for the area of the enterprise regarding the sale of musical instruments. The VAT deduction can be allocated based on the ratio of the sales amount of musical instruments to the total turnover in the enterprise.
VAT deductions for purchases before registration in the VAT register
Enterprises have the right to deduct VAT on many goods and services that are purchased up to three years before they are registered in the VAT register. This is called a retrospective VAT settlement. We assume that the purchases are used in the enterprise.
Businesses and enterprises can deduct VAT for goods and services that are not resold before the registration.
You can claim a retrospective VAT settlement by submitting a supplementary return for the period when you were registered in the VAT register.