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VAT deduction: the conditions to be met to exercise it

VAT deduction

The VAT deduction is only possible if the good or service has been acquired as part of an economic activity (usually a business) situated in the scope of VAT.

The said good or service must of course not be excluded from the right of deduction.

The taxpayer must also meet three cumulative conditions provided for by the general tax code (Article N ° 271).

I – Assignment of the good or service

The expenditure must be allocated to the needs of the operation of the enterprise, but it is not essential that the good be allocated exclusively to its needs.

In other words, a good or a service can be used partly in a professional capacity and partly in a private capacity. In this case, the VAT deduction will result in one or more accruals.

It is important to specify that it is not essential for the taxpayer to own the property he uses for business purposes.

II – Formalism

  1. The invoice must be regularly sent to the company by its supplier

Only invoices regularly issued to the company by its supplier of goods or services can justify the deduction. They may be sent directly or through an agent acting in the name and on behalf of the supplier.

The invoice constitutes a fundamental element for the right of deduction since it allows to formally justify a claim on the public treasury.

Here are two examples to illustrate the subject :

  • Receipts issued for road and motorway tolls including all mandatory information and a space to enable the customer to add his own information allow the deduction of VAT.
  • Bank card and bank statement tickets do not constitute invoices and therefore do not allow the recovery of VAT.
  1. VAT must be clearly indicated

VAT can only be deducted by a company if it is indicated separately on an invoice made in the name of the company.

  1. VAT must be invoiced regularly

An invoice is not enough on its own to create the right to deduct. It is necessary that the tax is actually due by the supplier, i.e. that the invoiced amounts actually correspond to a service or delivery that can be justified.

When an invoice does not contain enough details it may be necessary to present purchase orders, delivery notes or any other commercial correspondence.

It should be noted, however, that a customer may deduct the VAT invoiced by his supplier even if he is not liable for it if the customer could not have known about it.

  1. Some special cases

  • The VAT paid on the import is only deductible at the taxable person:
    • If it is in possession of the corresponding customs documents, the detailed bill of expenses of the customs broker or the certificate issued by the carrier;
    • If the general conditions of the right to deduction are fulfilled.
  • Reverse charge: this mainly concerns VAT on the subcontracting of real estate works and on intra-Community transactions.

On this last subject you can refer to the two articles already published on our website entitled:

VAT and intra-community trade in goods and other furniture

Principles of VAT taxation of services in Europe

  • VAT shown on a certificate: the deduction is allowed when the VAT is indicated on a certificate or report in the principal following cases:
    • Company using goods that it does not own;
    • Company that acquires a building;
    • Buying to state bodies exempt from VAT.

 Time conditions

  1. Origin of the right of deduction

The right of deduction arises at the customer’s premises when VAT is payable by the supplier.

On the other hand, for people who only perform occasional transactions, the right to deduct is born at the time of delivery.

The taxable person must therefore verify that the conditions for payment of tax are met (delivery of the goods or payment of the price, invoice, etc.).

  1. Exercise of the right to deduct

The tax is deducted from the tax due by the enterprise for the month during which the right to deduct is born. This concerns all goods or services including goods or properties constituting fixed assets.

As soon as the taxable person is in possession of the document on the date of deposit of his declaration of turnover, he may exercise his right of deduction on this declaration.

The taxable person may deduct VAT even if he has entered the invoice at a later date than the tax period.

Here are some examples of the deduction period :

  • When buying a movable property, the tax is deductible for the month of delivery ;
  • When purchasing a service, the tax is deductible in respect of the month of receipt of the price or advance payments by the service provider ;
  • In the case of the purchase of a building from a third party, the VAT may in principle be deducted in respect of the month in which the transfer document was signed ;
  • When a building is built by the taxpayer, the tax on supplies and works is deductible at the time of delivery. Then, at the time of completion of the building, the VAT on the “Delivery to oneself” (LASM) is deductible the month in which the LASM intervenes.
  1. Omission of the deductible VAT on the declaration of the month concerned

In case of omission of the deductible VAT (regularly invoiced) on the declaration of the month in which the right of deduction occurs, this can be recorded on a subsequent declaration.

This rectification is possible on any subsequent declaration until December 31st of the second year following the one of the omission. The amount of this VAT must be entered on a special line of the CA3 return.

We must also add that there are some specific schemes for the right of deduction which are mainly :

  • Damage compensation;
  • Public parking and parking on public roads;
  • Motorway tolls;
  • Subcontracting of real estate works.

We will not develop here these specific themes but we suggest you to contact us if you are concerned by any of these cases. We will endeavor to answer you in a short time.

We conclude this presentation by emphasizing the importance of formalism in terms of VAT recovery. Non-compliance with tax rules can lead to tax adjustments involving very high amounts. Also, to avoid such disappointments, we advise you to have your VAT returns prepared by a professional who knows perfectly the mechanisms of this tax.

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