Input VAT deduction

In short: Businesses under standard VAT may deduct the VAT they pay on purchases (input VAT) from the VAT they charge customers. Small businesses may not.

In more detail: The amount owed to the tax office is VAT on sales minus input VAT on purchases. This way only the added value is taxed. A prerequisite are proper invoices with VAT shown.

In detail

• Example: you buy material for 119 euros gross (19 euros of input VAT) and sell the product for 238 euros gross (38 euros VAT). Amount due: 38 − 19 = 19 euros.
• Prerequisite: invoice in your name showing VAT, use for the business.
• Small businesses: input VAT is part of the costs and cannot be deducted.
• Payment: the amount due is reported via the VAT pre-return (VAT pre-return).
• Refund: if input VAT exceeds output VAT, you get money back from the tax office.

See also: VAT: rates and basic concepts, Small business scheme: limits and switching to standard VAT