Right to deduct input VAT and VAT refunds

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.

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.  A list of addresses in the Member States to which claims for refunds under the 8th VAT Directive (79/1072/EEC) should be made and the list of minimum amounts refundable, can be found here .

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 Community".

From 1st January 2010, the current procedure for reimbursement of VAT incurred by EU taxable persons in Member States where they are not established will be replaced by a new fully electronic procedure, thereby ensuring a quicker refund to claimants. The current paper-based procedure is slow, cumbersome, and costly. The new procedure will better facilitate taxable persons and improve 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/EC . Additional information on expenditure and business activity codes can be found in Commission Regulation No 1174/2009 .

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.