Are there exceptions to the input tax deduction entitlement?
September 16, 2022 | 35,00 EUR | answered by Roberta Schlattmann
Dear tax consultant,
My name is Ben Ehrenbreit and I run a small online trading company. Lately, I have been focusing intensively on the topic of input tax as I would like to optimize my operating costs. I have come across the possibility of claiming input tax, but I have heard that there may be exceptions to the right to deduct input tax and I am therefore somewhat concerned.
Currently, I keep proper records of all my business purchases and collect all receipts in order to claim them in my VAT return. This mainly includes office supplies, advertising costs, and other business expenses. I actively use input tax to reduce my financial burden.
However, I have heard from colleagues that there are certain cases where input tax cannot be deducted. This has left me feeling unsure as I want to make sure that I am doing everything correctly and not paying unnecessary taxes. Therefore, I am wondering if there are indeed exceptions to the right to deduct input tax and if I may be affected by them.
Could you please explain to me in more detail what exceptions there are to the right to deduct input tax and what I, as a business owner, need to pay attention to? Are there specific industries or types of costs where input tax cannot be deducted? And what can I do to ensure that I correctly claim my input tax?
Thank you in advance for your help and support. I look forward to hearing from you.
Best regards,
Ben Ehrenbreit
Dear Mr. Ehrenbreit,
Thank you for your detailed inquiry regarding the input tax deduction. As a tax advisor, I am pleased to be able to assist you and provide more clarity on the exceptions to input tax deduction eligibility.
In principle, it is correct that entrepreneurs can claim input tax, i.e. the sales tax they pay for their business expenses, in the context of the VAT return. This serves to reduce the financial burden for entrepreneurs and optimize operating costs. You have correctly recognized the importance of keeping all receipts properly organized and correctly specifying them in the VAT return.
However, there are indeed exceptions to input tax deduction eligibility that you as an entrepreneur should be aware of. An important point is that the expenses for which input tax is claimed must actually serve the company. This means that only input tax incurred for business purposes can be deducted. Private expenses are excluded.
Furthermore, there are certain types of costs where input tax deduction is restricted or excluded. These include, among others, representation costs, such as expenses for entertainment, gifts, or travel that do not directly serve the business purpose. Also, motor vehicles used for both private and business purposes are subject to special regulations for input tax deduction.
In some industries, there are also specific rules or restrictions on input tax deduction. For example, the catering industry or the rental of real estate may have special regulations that can impact input tax deduction.
To ensure that you correctly claim your input tax, I recommend seeking advice from a tax advisor who is familiar with your specific business model. A professional advisor can help you identify all relevant expenses and calculate the input tax deduction correctly.
I hope that this information has been helpful to you. If you have any further questions or would like more detailed advice, I am at your disposal.
Best regards,
Roberta Schlattmann
