VAT tax as a tax deductible cost

Service-Tax

In business transactions, virtually every entrepreneur, and even a private person, deals with VAT. It almost always occurs when it comes to buying and selling. Taxpayers running a business, in certain situations clearly defined by law, have the right to classify tax on goods and services as tax deductible costs.

Pursuant to the Personal Income Tax Act, tax deductible expenses are expenses incurred in order to generate income or to preserve or secure the source of this income. Additionally, in order for an expense to be considered justified, it must be related to the conducted activity, be properly documented and not be included in the catalog of expenses not recognized as tax costs (Article 23 (1) of the Act).

According to Art. 23 sec. 1 paragraph 43 tax on goods and services may not be a tax deductible cost. However, the act also provides for some exceptions, where the following are considered costs:

1. Input VAT:

  • in full, if the taxpayer is exempt from value added tax or purchased goods and services in order to manufacture or resell goods or provide services exempt from tax on goods and services,
  • in part, in the amount in which, in accordance with the provisions on tax on goods and services, the taxpayer is not entitled to a reduction in the amount or a refund of the difference in tax on goods and services - if the input tax on goods and services does not increase the value of a fixed asset or intangible and legal value.

2. VAT due:

  • in the case of import of services and intra-Community acquisition of goods, if it does not constitute input tax within the meaning of the provisions on tax on goods and services; However, the tax due in the part exceeding the amount of tax on the acquisition of these goods and services, which could constitute input tax within the meaning of the provisions on tax on goods and services, is not a tax deductible cost,
  • in the case of the transfer or consumption of goods or services by the taxpayer for the purposes of representation and advertising, calculated in accordance with separate regulations,
  • on the goods provided free of charge, calculated in accordance with separate regulations, if the only condition for their transfer is the prior purchase by the recipient of goods or services from the transferor in a specified quantity or value.

3. The amount of tax on goods and services, not included in the initial value of fixed assets and intangible assets, subject to depreciation in accordance with Art. 22a-22o, or regarding other things or rights that are not fixed assets or intangible assets subject to this depreciation - in the part in which an adjustment was made to reduce the tax deducted in accordance with art. 91 of the Value Added Tax Act.

Therefore, as it follows from the above provisions, under certain conditions, both active taxpayers and taxpayers exempt from the obligation to settle VAT, may also include it as tax deductible costs.