Input Tax or Prepaid VAT or Input VAT

If you haven't heard about this tax, then you are not really in business. Input tax (Vorsteuer) is to your advantage –  believe it or not.

 

What is input tax? Another kind of tax that when put into a tax officer, it will make him process my application?

Nice joke. Input tax or pretax or prepaid tax is the VAT another business billed you in a valid invoice (§15 UStG). You are expected to have the invoice in your bookkeeping records!
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This leads us to the simple equation to calculate your VAT-bill.

VAT – deductible input tax = “VAT to be paid from you to tax office" or "be refunded from tax office to you”

or in German: Umsatzsteuer - Vorsteuer = "Umsatzsteuerzahllast" bzw. "Vorsteuersteuerüberhang"

As you continue reading, you will see, it is not as easy to meet the requirements of this equation as it sounds.

 

Under what conditions can input VAT be deducted?

Businesspeople can charge the input tax against their VAT bill only if the bills they receive are correctly formatted (§14 UStG with §§33, 34 UStDV). Valid invoices must show

  • VAT in percentage,
  • invoice number,
  • VAT in a sum,
  • amount of goods sold or quantity of services rendered and name as usual in business,
  • consideration of delivery or performance,
  • tax number of the company presenting the invoice,
  • and in the case of final invoices the net prepayments must be shown and deducted.

You are entitled to receive correct (as mentioned above) bills. For simplicity sake, small bills can have VAT and consideration in one amount.
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For complete details, consider buying the brochure eLiterature on Invoicing Formalities.

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I hired my attorney to collect from a customer, who hasn’t paid his bill. He told me that – in the end – I will only have to pay the VAT of his bill as it is not considered as a damage for persons subject to input taxation. I’m “vorsteuerabzugsberechtigt”. What does this mean “vorsteuerabzugsberechtigt”?

This simply means that since you can always deduct the VAT in professional expenses, you will not be financially burdened by this payment. It’s just like a prepayment on your annual value added tax bill. So, no burden of payment means no damage. Relax, German people who are self-employed also have a hard time understanding this.
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What constitutes a “small bill”?

Pursuant to §33 UStDV, a small value invoice exists if the total value of the invoice does not exceed € 150. To qualify for deduction, these “small value” invoices must contain following details:

  • The complete name and complete address of rendering business,
  • Issue date,
  • The amount and kind of delivered things or amount and kind of service and
  • The remuneration including VAT for the purchase or service and the applicable tax rate (7% or 19%).
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I just noticed that the paid invoice wrongly shows VAT. I guess that will be no problem to deduct the prepaid VAT.

I would not rely on that. Best would be that you write a return invoice, now issue a correct invoice, and refund the surplus VAT (§14c UStG). When you are being audited, it is too late for any corrections. The legal consequence of wrongly billing with VAT is that you owe this tax- even when your business is VAT exempt. Your customer may not deduct this as input tax (§15 UStG).
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Phrasing Hints:

die Vorsteuer ziehen = to deduct input tax

Vorsteuerabzug = deduction of input tax

vorsteuerabzugsberechtigt = eligible to deduct input tax