Every entrepreneur who is registered as an active VAT taxpayer tries to optimize the issues related to this settlement as much as possible. Withholding tax is mandatory, but each purchase invoice causes its value to fluctuate. So how to deduct VAT? When can this be done and what are the rules for it?
A taxpayer running a business who is an active VAT payer may deduct input VAT if his purchases are used for his business and have an impact on his income. This is the basic and most important issue described in the VAT Act, Art. 86 paragraph 1.
As a rule, VAT deduction is possible for the period in which the tax obligation arose in relation to the purchased or imported goods, but at the same time it cannot be earlier than for the period in which the invoice was received. However, if the taxpayer fails to make the deduction within that time, the legislator provided for the deduction option in one of the two consecutive tax periods.
Every active VAT payer is obliged to submit a VAT declaration to the tax office competent for the place of business. If he is entitled to a deduction of VAT and he will not do it in the period in which he received the invoice, or in any of the two subsequent periods, he can still do so by submitting an appropriate correction of the previously submitted declaration. The correction should apply to the declaration from the period in which the taxpayer received the invoice. The taxpayer has 5 years to submit a correction to the previously submitted declaration. The VAT regulations clearly state that the VAT due can be recovered up to 5 years back. To facilitate the correction, as of 2016, entrepreneurs were released from the need to justify the corrections made in the settlement in writing.
In order to correct the declaration, it is necessary to have a correcting invoice. If the taxpayer is the seller and for some reason (rebate, reduction, mistake) changes the sale price, he has to issue a correcting invoice and pass it to the buyer. Only when the buyer confirms receipt of the correcting invoice, the taxpayer can prepare a correction to his tax declaration. If it is the buyer who has to correct the declaration for some reason, then he has to wait for the correcting invoice from the seller and prepare his correction according to its content (reduction, increase).
The legislator also provided for the possibility of deducting VAT for utilities supplied to the company (telephone, Internet, electricity). The fees for utilities are regulated for the past period. This in turn means that the obligation to settle occurs upon receipt of an invoice from the company that is their supplier. This cannot be done sooner.
Deduction of VAT is a great way to optimize costs incurred for the tax office. However, it must be remembered that each expense and each purchase must be justified by the activity conducted. It must be intended either for the functioning of the office, or contribute in some way to the entrepreneur’s earning income (e.g. a car is such a purchase – it allows for the delivery of goods, and therefore allows to sell these goods).
To sum up, it is possible to deduct VAT up to 5 years back, but it requires appropriate documents confirming the taxpayer’s right to this type of deduction. These documents are: invoices, corrective invoices as well as declarations and corrections of tax declarations submitted to the tax office.