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Right to deduct input VAT and VAT refunds

Updates

A taxable person is allowed to deduct the VAT he paid on his purchases insofar as the goods or services are used for his business activities. However, there is no right to deduct input VAT if he:

  • uses them for an exempt activity or
  • is not obliged to charge VAT on his outputs (e.g. schools, banks, insurance companies, small businesses under the exemption threshold etc).

A taxable person whose input VAT exceeds his output VAT is entitled to a refund of the excess from his national treasury. However, Member States may decide to carry forward the excess to the next taxable period and offset it against tax due in that period.

 

Cross-border refunds of VAT in the EU

Taxable persons who incur VAT in connection with their business activities in a Member State in which they do not make supplies of goods or services are entitled to deduct the VAT charged in that Member State. This "deduction" is by means of a refund of VAT from the Member State in which the VAT was paid.  Some Member States apply limitations to this right to deduct input VAT (e.g. restaurant costs, entertainment activities, cars, fuel etc.). See the Commission's information document " VAT in the European Union".

Since 1st January 2010, the  procedure for reimbursement of VAT incurred by EU taxable persons in Member States where they are not established has been replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The previous paper-based procedure was slow, cumbersome, and costly. The new procedure better facilitates taxable persons and improves the functioning of the internal market. A new feature is that taxable persons will be paid interest if Member States are late making refunds. For further information see the Directive 2008/9/ECpdf. Additional information on expenditure and business activity codes can be found in Commission Regulation No 1174/2009pdf.

As there are variations in the application of the Directive, the Commission has produced a Vademecum outlining the procedures in each Member State.  In addition, an Information Documentpdf(22 kB) Choose translations of the previous link  has been produced, detailing which Member States are making use of the business activity codes contained in Commission Regulation No 1174/2009.  These documents are intended as guides only, and businesses should refer to the Member States themselves in the first instance, using the contact detailspdf(138 kB) Choose translations of the previous link  provided.

 

Following a number of concerns regarding the implementation of the electronic VAT refund procedure, the Commission, together with Member States, has developed a table of VAT Refund issuespdf(37 kB) and solutions, and a document outlining the legislation relating to the procedurepdf(11 kB), along with Member States' responsibilities at the various stages of the process. These documents have been endorsed by Member States in the Standing Committee on Administrative Cooperation and are available in English only.

The Commission has developed an e-learning course on VAT Refunds for EU businesses, which is freely available for download.

 

Non-EU businesses

Taxable persons not established within the Community who incur VAT in connection with their business activities in a Member State in which they do not make supplies of goods or services are entitled to deduct the VAT charged in that Member State. This "deduction" is by means of a refund of VAT from the Member State in which the VAT was paid. Information on claims for refunds under the 13th VAT Directive ( 86/560/EEC) can be found below for each Member State

 

Updates

Lithuania's entry into the Eurozone on 1 January 2015 

Cross border VAT refund claims under Council Directive 2008/9/EC shall be expressed in the valid currency of the Member State of Refund at the time of the relevant invoice(s). Thus, claims that relate to invoices issued before 1 January 2015 shall therefore be expressed in Litas, and not euros, no matter when the claim is submitted.