Input VAT

What it means

Input VAT is the tax a payer has paid when buying goods and services for its business: to the supplier on an invoice, to customs on import, or to itself under reverse charge. It is the other side of the value added tax mechanism, which ensures a company pays tax only on the value it has added itself.

Several conditions must be met at once to deduct the tax: the purchase is used for taxable supplies, the company holds a tax document with the required particulars, and the supplier is a VAT payer. On import the customs decision on import VAT is the document; under reverse charge, the foreign supplier’s invoice.

In the return, input VAT is deducted from output VAT. If it is higher, an excess deduction arises, which the state refunds or which is carried forward to the next period.

How it works in practice

The right to deduct arises on the day the supplier’s tax liability arises, but it can be exercised no earlier than the period in which the company holds the document. If the invoice arrives later, the deduction is claimed in the period it is received, and the law also sets a final deadline after which the right lapses.

For purchases used for exempt supplies as well, for example in a company that lets flats and also sells goods, the deduction is reduced by a pro rata coefficient. It is reduced likewise for private use, and for capital goods it is adjusted in later years if the use of the asset changes.

Every purchase invoice with VAT goes into the control statement, and the Financial Administration’s system matches it against the supplier’s statement. A mismatch triggers a request, so when posting we check the supplier’s VAT number, the supply date and the tax amount exactly as on the document.

What to watch out for

Deduction is not an automatic entitlement. If the supplier turns out to be a link in a fraudulent chain and the company could have known, the tax office denies the deduction even when the invoice is formally flawless. For new suppliers we therefore check their history, the Financial Administration’s lists and whether the price is usual.

A common mistake is deducting tax on purchases the law excludes, such as hospitality and gifts, or on invoices made out to another company or a private individual. At an audit such tax is reassessed with interest and a penalty, so we separate it out when posting.