Many of our clients ask the question: “Can I deduct VAT on purchases or expenses acquired before the registration date?”
The short answer is Yes. That’s the answer the TEAC (Central Administrative Economic Court) gives us in its resolution is yes, although we must consider certain precautions that we explain below.
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Preparing for business activity
You may be thinking of starting an economic activity. However, you are not going to provide services or sell goods yet. You are organizing your company, locating the best suppliers, and contacting future clients.
All these steps are without earning a penny. Rather the opposite, you are spending the few savings you have available.
Deduct VAT on pre-registration expenses: is it possible?
Now you are wondering if you can buy goods or services with dates before the official registration date. You may think that the more you stay without registering, the fewer Social Security payments you will have to spend. To be able to deduct the VAT from expenses and purchases made before the start date, it is enough to prove that you intended to start the activity.
Proving your intent to start business
What are the means of proof that the Tax Agency allows to prove that intention?
1. You had requested the authorizations and licenses that you require for the operation of your activity.
2. The goods and services received are related to your business.
3. You have submitted a 036 form before the start of operations (pre-registration).
4. The time elapsed between the purchase of goods and services and the start of the activity is reasonable.
If we stick to what the TEAC has stated, it is enough that you prove the intention to start an activity. That means it is not necessary to carry it out.
Dealing with business failure
What if it turns out that you acquire merchandise for resale because you are going to sell household appliances? And it turns out that you couldn’t finally make a sale? Does the failure of your business mean that you lose the right to deduct VAT on merchandise purchases?
According to the TEAC, no, it doesn’t. But as long as you can prove that you intended to start that activity and it failed.
In practice, what is truly important is to designate the goods or expenses to the business that you are going to start, not buying them too early and not acquiring goods that you can use privately.
In the latter case, what you should try is to make changes to the goods that help you demonstrate their business use.
Prove the business use of the goods
Let’s see it with an example: in the case of vehicles, put a vinyl with the company logo as soon as you buy it. Then document it with the invoice of the supplying company and photos of the vehicle.
That way you make sure your vehicle is completely designated to the use of your business activity and not for personal use.
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