Input VAT deduction

What it means

Input VAT deduction is the payer’s right to reduce its own output tax by the tax suppliers charged on top of the price. It is what keeps the burden on the final consumer and keeps VAT a pass-through item for a business rather than a cost.

The right belongs only to a payer registered under section 4. A holder of a VAT number from a section 7a registration pays the tax on a service bought abroad but cannot deduct it, which is the usual misunderstanding on a first cross-border purchase.

Only Slovak VAT can be deducted, or tax the payer itself declared under the reverse charge. German or Czech VAT on a hotel or a tank of fuel cannot be claimed in the Slovak return; it is recovered through the separate foreign VAT refund procedure.

How it works in practice

The deduction is claimed in the period in which the supplier’s liability arose and the payer holds the tax document. The Act sets the last period in which the right can still be exercised, and after that only an amended return is left.

Where the purchase also serves supplies without a right to deduct, it is cut back by proportional deduction. When input tax exceeds output tax the result is excess input VAT, and with it a greater chance of a query from the tax office.

Under self-assessment, for instance on a service bought from a foreign supplier or on construction work in Slovakia, the payer declares the tax and as a rule deducts it in the same return. The net effect is often nil, but both sides must be reported or the control statement will not reconcile.

What to watch out for

The VAT Act bars deduction on hospitality and entertainment, however commercial the dinner with the client was. At an audit the office strikes out every such document across the whole period reviewed and adds late payment interest to the tax assessed.

The right to deduct does not help if the supplier never paid the VAT and the buyer knew or should have known it was taking part in fraud. With new suppliers offering suspiciously low prices we therefore check their registration and the lists of taxpayers, or the office refuses the deduction or applies joint liability for the tax.