The sales tax that is billed to the company when purchasing products, services or other supplies is the tax referred to as input tax. A company can offset the sales tax invoiced against the sales tax that it has to levy on its services or deliveries – this is then the input tax deduction. This is done as part of the advance VAT return.
An example of input tax:
An entrepreneur buys new computers for his business. The invoice he receives shows:
5 computers EUR 10,000.00
sales tax 19% EUR 1,900.00
total amount EUR 11,900.00
The company can then reclaim the sales tax that is included in the invoice as input tax from the tax office.
The input tax: explained in more detail.
Every entrepreneur often receives incoming invoices and on these the sales tax is shown, which from his point of view is referred to as input tax. If the entrepreneur is subject to sales tax, he can have the input tax amounts contained on the invoice reimbursed by submitting his advance sales tax return from the tax office.
To do this, the entrepreneur must offset the VAT to be reimbursed against the reimbursable input tax. This is done either monthly, quarterly or annually, depending on the amount of sales tax paid in the previous year. According to Wholevehicles, the situation is different for start-ups, they are obliged to submit a monthly advance VAT return and thus to reimburse input tax.
By balancing the tax amounts, the entrepreneur does not violate the offsetting ban, because the input tax represents a claim against the tax office. However, the prerequisite for this is that a properly completed invoice is available from the biller, which contains all the components required by the legislator .
Who has to pay the input tax?
The regulations on sales tax also apply to input tax. Therefore, every entrepreneur is subject to sales tax, and consequently also entitled to input tax. The tax rate is 7% or 19% depending on the respective goods or services. Entrepreneurs with a turnover of less than € 17,500 can take advantage of the small business regulation. You do not have to pay sales tax to the tax office, but as a result you do not receive any input tax, which means there is no possibility of input tax deduction.
What must a proper invoice contain?
In order for the payment of an invoice to be recognized as a business expense, all that is required is an operational prompt. But when it comes to input tax deduction, far more components are required on an invoice. A distinction must be made between an invoice over 150 euros and a so-called small amount invoice under 150 euros (including sales tax).
- The components of a small amount invoice under 150 euros including sales tax
This is created in accordance with Section 33 of the Sales Tax Implementation Ordinance (UStDV):
The invoice must contain:
- The full name and address of the supplying company
- The date of issue
- The quantity and type of items delivered or the scope and type of services
- The gross amount – payment amount including sales tax in one sum
- The applicable tax rate – e.g. 19% or the reference to your applicable tax exemption.
- The components of an invoice for 150 euros including sales tax
This is created in accordance with Section 14 of the Sales Tax Act (UstG):
- Full names and addresses of entrepreneurs and service recipients
- The tax number or the sales tax identification number
- The date of issue
- A consecutive number with one or more series of numbers that is assigned once by the issuer to identify the invoice (invoice number)
- The type and quantity of the delivered items or services.
- The time of delivery or other service or the receipt of the fee or part of the fee in the cases of paragraph 5 sentence 1, provided that this point in time is fixed and is not identical to the date of issue of the invoice.
- The itemized fee for the delivery or other service (§ 10) according to tax rates and individual tax exemptions as well as the agreed reduction in the fee, unless it is already taken into account in the fee that was agreed in advance
- The applicable tax rate (e.g. “19%”) as well as the tax amount due on the consideration or, in the case of a tax exemption, an indication that a tax exemption applies to the delivery or other service
- In the case of deliveries or services in connection with a property, a reference to the storage obligation for non-entrepreneurs.
When is input tax not allowed to be deducted?
As a rule, input tax can only be deducted from deductible business taxes. The opposite also applies to sales tax.
The following expenses, for example, are therefore not eligible for input tax deduction:
- Lifestyle and household
- Income taxes and personal taxes
What exactly is the input tax deduction?
The input tax deduction defines the right of a company to offset the sales tax it receives from salespeople against the input tax payment it has made from purchases. If the input tax paid is higher than the sales tax received, the input tax surplus is calculated. As a result, the company receives the difference back from the responsible tax office. If, on the other hand, the sales tax received is higher than the input tax paid, this results in a sales tax burden. This means that the company has to repay the difference to the tax office. It is important to note that only entrepreneurs are entitled to deduct input tax. However, so that the input tax deduction can take place, the invoice must meet all the requirements of §§ 14 ff. UStG.
Differentiation input tax, sales tax, value added tax
Value-added tax is used colloquially as a generic term for input tax and sales tax.
Input tax is the tax that the company pays with an invoice when purchasing goods and services, usually on expenses. Companies that are entitled to deduct input tax will receive the input tax paid back after the advance VAT return.
Sales tax is the tax that is due for the entrepreneur on income. It must be shown separately on the invoices and is paid to the tax office after the advance VAT return.
Input tax or sales tax can be seen as different ways of looking at the same tax.
The advance VAT return in detail
This is a monthly report to the tax office about the sales made, which were summarized in a monthly report, as well as the posted sales tax and the posted input tax. This then results in the sales tax payable, which must be settled by the 10th of the following month or the sales tax refund claim, which is then reimbursed by the tax office (input tax deduction).