VAT Deduction Rules: Fees, Partial Deduction, and Investment

VAT Fees Eligible for Deduction

The following fees can be deducted:

• Submission-entry of goods from another taxable person
• Imports of goods
• Intra-Community acquisitions
• Fees relating to cases of reverse charge

Partial Deduction or Pro Rata

This applies when a company performs two types of activities: operations with deduction and operations without deduction.

The consequence is that only a portion or percentage of the taxes charged can be deducted.

What percentage? To determine the coefficient, calculate the following:

(Sum of output-delivery deduction in the year) / (Sum of all delivery-end of the year)

To calculate the deduction, multiply the percentage by the taxes charged.

Dynamics During the Exercise: Provisionally apply the percentage from the previous year. Once the exercise is complete, calculate the final percentage for the current year.

Until the entire year has passed, you cannot determine the exact VAT to be paid. Therefore, in the first, second, and third quarters, you must use data from the previous year. Apply the proportion from the last year and adjust the numbers based on the previous data. For example, if the proportion last year was 60% and this year it is 70%, you would apply 70% provisionally. In the last quarter, when the final pro rata is known, you can adjust accordingly. If the final proportion is 70%, you would deduct an additional $10. This adjustment is made in Q4, and the figures for Q1, Q2, and Q3 are also adjusted.

Subtract the VAT paid from the VAT collected, and then adjust the numbers for the previous quarters. If there was an additional $10 deduction per quarter, this would be reflected in Q4 by subtracting the sum of $10 per quarter that should have been deducted.

Investment Property

The fee deduction should be rectified during the next four years if there is a significant variation in the deductible percentage of the activity. Specifically, this will be done in the years in which there is a difference of more than ten points between the final tax credit and the deduction for the year of investment. The time to regularize is by year's end.

The result will be a supplemental income, i.e., income in an accounting sense to compensate for an excess deduction, or an additional deduction.

Quantification: (Deduction on the exercise of the investment) - (Deduction in the current year) / 5

Conditions or Requirements:

1. A company in a pro rata regime (Section 2).
2. Purchase of an investment good.
3. Significant variation in the percentage of deduction for the activity.

Input Tax and VAT Returns

When the excess on purchases exceeds the VAT charged on sales throughout the settlement period, a right to compensation arises in the future period. In certain cases, a right of return for the employer may also arise. Mathematically, the excess will be expressed with a negative sign.

General Assumptions of Return

This is regulated in Article 115 of the law. The assumption is the continued excess of input tax over fees passed on or accrued.

The implication is that the right to request the balance in favor of the subject on December 31st of each year is claimed. Alternatively, the deduction can continue for four years in self-assessments in subsequent periods.

Impact on sales taxes - VAT: In general, we bought 18% VAT.