VAT deduction on purchases prior to VAT registration

VAT deduction is the taxpayer's primary right when VAT is deducted on purchases prior to registration. But is such a right also a novice entrepreneur who has not yet formally registered VAT with the office? Is the entrepreneur entitled to a VAT deduction on purchases before registering the business?

Deduction of VAT on purchases before registration and the position of tax authorities

Entrepreneurs make numerous purchases when starting their own business. In most cases, they take place faster than the VAT-R declaration, which gives the entrepreneur the status of an active VAT payer, is submitted to the tax office.

Until recently, tax authorities insisted that in such situations entrepreneurs cannot deduct VAT if it was charged prior to the formal VAT registration. However, after a wave of court decisions in similar cases, tax offices changed their approach to this issue. Currently, the interpretation is applied that at the time of VAT deduction, the entrepreneur must already be an active taxpayer. The Value Added Tax Act states that a taxpayer may deduct VAT on purchases of items and services that will be used for taxable activities. This means that making them before VAT registration does not remove the right to deduct input tax from them.

Deduction of VAT on purchases before registration - example

To better understand the above regulations, we will use an example: the entrepreneur registered a business on March 1, 2016. From March to June, he purchased goods necessary for running a business, and in July he submitted a VAT-R form to the tax office, when he actually started his business.

The question in this situation is: is he / she entitled to deduct VAT for the period from March to June 2016 on the basis of invoices for purchases made?

According to the individual interpretation of the Director of the Tax Chamber in Łódź of December 8, 2011 (file reference number IPTPP2 / 443-509 / 11-4 / BM), the entrepreneur may reduce the tax due by the value of the input tax resulting from invoices for purchases. In support of this interpretation, he referred to the provisions of the VAT Act, according to which the sum of tax amounts from purchase invoices constitutes the amount of input VAT. The justification also mentioned that the VAT deduction does not apply to taxpayers who are not registered as active VAT payers. In addition, it was clarified that the regulations do not specify the necessity to be an active taxpayer at the time of receiving invoices for purchases made.

VAT deduction without VAT-R registration

Now consider another example: the entrepreneur started his business on August 1, 2016. During that month, he purchased goods for business purposes and sold his services. At the end of September, he settled the tax on goods and services on the VAT-7 declaration, which he submitted on September 30, 2016 to his tax office. In October 2016, the tax office informed him that he had not submitted the VAT-R form.

The question in this situation is: was the entrepreneur entitled to deduct VAT for August 2016?

The answer in these circumstances is in the affirmative. The entrepreneur had the right, but must submit a VAT-R declaration to the tax office with the indication of August 2016 as the settlement period.

From both examples it can be concluded that the VAT Act allows for a VAT deduction on the basis of purchase invoices before submitting the VAT-R declaration to the office, provided that the purchases made were necessary for running a business.