Invoices and the inability to deduct VAT


Entrepreneurs who are active VAT payers often use the option to deduct VAT. Art. 88 sec. 3a of the Value Added Tax Act indicates that this is not always possible. Below we present situations where the input VAT cannot be deducted from the purchase invoice.

Deduction of VAT from an invoice issued by a non-existent entity

Entrepreneurs cannot deduct VAT from invoices issued by a non-existent entity. It should also be added that the provisions of the VAT Act do not specify what is meant by "non-existent entity". According to Art. 88 sec. 3a of the VAT Act, point 1 lit. and in general, this phrase is understood as a fictitious entity, i.e. a company that does not exist or a registered entity, but based on outdated, inaccurate or false data. They do not submit tax declarations and do not show the tax due, which results from the issued invoices - and therefore they do not pay tax.

Invoice for goods / services not subject to or exempt from taxation

Often, entrepreneurs, due to ignorance, haste, or even the intention to deliberately break the law, issue an invoice for taxation of an activity that is not subject to tax according to the law or has been exempt from it. In such a situation, instead of information about the exemption ("exemption") on the invoice, the rates of 5%, 8% or 23% are applied. Pursuant to Art. 88 sec. 3a, point 2, input tax cannot be deducted from these invoices - also in a situation where this tax has been paid.

However, there is an exception to this rule - in a situation where the buyer has received an invoice containing an incorrect VAT rate - for example, the invoice includes a rate of 5% instead of 23%. If this type of error occurs, the entrepreneur has the option of reducing the output tax by input tax on the basis of such a document.

Invoice and transactions inconsistent with the actual state

Pursuant to Art. 88 sec. 3 point 3 of the VAT Act, the buyer cannot deduct the input VAT in the case of invoices relating to transactions that are not in accordance with the actual state. It mainly concerns invoices (and customs documents, corrective invoices) which:

  • constitute the so-called "Blank invoices", i.e. those that state incomplete actions,
  • confirm such activities that relate to the provisions referred to in Art. 58 and 83 of the Civil Code,
  • containing amounts that are inconsistent with reality.

The penultimate point which relates to Art. 58 of the Civil Code emphasizes that a legal act that is inconsistent with the law or aimed at circumventing it is invalid. The exception may be when the relevant provision provides

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other effect - e.g. one in which the invalid provisions of a legal transaction will be replaced by provisions in accordance with the act. It should be emphasized that a legal act contrary to the principles of social coexistence is also considered invalid. Moreover, pursuant to Art. 83 of the Civil Code a declaration of intent made to the other party with their consent for appearances is also invalid.

Invoice without the seller's approval - invalid

In accordance with point 6 of the discussed provision of the VAT Act, it is not possible to deduct input tax in a situation where the buyer issues an invoice - the so-called self-invoicing - without the seller's approval of the invoice. In this case, the changes apply from January 1, 2014 and are specified in Art. 106d paragraph. 1 of the aforementioned legal act. The buyer is entitled to self-billing only if it is:

  • a legal person who is not a taxpayer,
  • taxpayer of value added tax,
  • a taxpayer of value added tax or a tax of a similar nature.

It is worth adding that self-invoicing applies to documenting the sale of goods and services made by the taxpayer to this buyer and in the case of issuing an advance invoice. It also covers the supply of goods and the provision of taxable services in a third country. As indicated by the provisions in force in 2014, the necessary condition for self-invoicing is the prior conclusion of an agreement on issuing invoices in the name and on behalf of this taxpayer, in which the parties will define the procedure for approving individual invoices by the seller.

An invoice for an activity for which the tax is not shown on the invoice

Pursuant to Art. 88 sec. 3 point 7, the taxpayer cannot deduct VAT in the case of issuing an invoice with the indicated amount of tax in relation to taxable activities for which the amount of tax is not shown on the invoice. An example is an invoice for the purchase of goods from the so-called reverse charge.