As you can guess from the title of the article, not all the VAT you pay is considered deductible. In order for the paid VAT to be considered deductible, it must meet a series of requirements. These are the 4 requirements that an expense must meet so that the VAT in the acquisition of any good or service can be considered deductible:
For the expense to be properly justified, it must be reflected in a complete invoice. This invoice must contain the following information: name, address and TIN of the customer and supplier, date, invoice number, concept and breakdown of the tax base and the VAT quota.
The expenses must be linked to the activity carried out and must be necessary to obtain income. For example, VAT on clothing purchased by the owner of the activity is not considered deductible.
The expenses must be properly registered in the books that must be kept by any professional carrying out an economic activity (expense book).
You can deduct the VAT of your expense invoices in the 4 years following the date of issuance of the invoice.
Next, let’s relate the exclusions of the right to deduct regulated in art. 96 of the VAT Law, with its details:
1. Jewellery, precious stones and objects made entirely or partially with gold or platinum. Whether for own consumption or as customer service, the VAT incurred in the acquisition of these goods is not considered deductible.
2. Food, drinks and tobacco. But what happens if you give a box of chocolates, as an object of little value to a customer, in a promotional packaging with your company logo, it is food, could it be deducted? In our opinion, it is an object of advertising or loyalty of low value and according to section One.5. a) of the same art. 96 LIVA would not be considered within the exclusions.
3. Recreational shows and services. We invite a customer to a basketball game, can we deduct the VAT from his ticket? If it is a public relations expense with customers and suppliers, it is being used to promote the activity and has a correlation with income, it could be defended, but you have to keep in mind that the burden of proof falls on you, and in this case, the proof is not easily defensible.
4. The goods or services intended for customer service or third parties. The VAT of these gifts could only be considered deductible if samples of low value or goods produced in the economic activity are given (for example if we make sweets and give a cake).
5. Travel services, hospitality and catering. The VAT will only be deductible to the extent that they are considered tax-deductible expenses for the purposes of personal income tax or Corporate Income Tax. Therefore, the requirements that these expenses must meet in order to be considered deductible are two:
– They must have the exclusive purpose of promoting the activity and
– Have a correlation with income.
As you can see, in the controversial cases such as gifts to customers, meals with customers, travel expenses, both for the client and the employer, the main obstacles to VAT deductibility are two: that it is conveniently justified (tickets or simplified invoices are not invoices) and proof of their purpose.
The solution to the first obstacle is easy, insist until you get the valid invoice. The solution of the second obstacle involves using any means of proof that you can use in law. As examples to prove that you were in a certain place on a specific day, you can use parking tickets, fines, visiting sheets signed and sealed by the client, contracts with the client with the address of your local or branch, etc.