Input tax deduction – General information

An entrepreneur is entitled to deduct input tax where a delivery or other service in respect of which a proper invoice is available within the meaning of section 11 of the Umsatzsteuergesetz (UStG) is carried out domestically on behalf of their company (section 12 paragraph 1 of the UStG). Deliveries, other services and importing goods are deemed to be carried out on behalf of the company where these take place for the purposes of the company and where at least 10 per cent are used for business purposes (section 12 paragraph 2 of the UStG).

For actual tax imposers (section 17 of the UStG), whose turnover in the previous assessment period has not exceeded 2 million Euros in accordance with section 1 paragraph 1 (1) and (2) of the UStG – hin this case turnover from auxiliary business including business divestitures shall be excluded, an additional requirement for input tax deduction is that payment has been made. The payment requirement for input tax deduction does not apply where a calculation has been made pursuant to section 215 paragraph 4 of the Bundesabgabenordnung (BAO) in the amount of the total VAT due on the delivery or other service to the service provider’s deliveries account. There are special regulations for buildings.

Input tax can also be deducted in the case of advance payments made (i.e. prior to the use of a service), when the advance payment is made and a proper invoice has been drawn up to this effect. Irrespective of the drawing up of an invoice, input taxes can be claimed where the other requirements are met, including in connection with imports from third countries (import VAT), intra-Community acquisitions (acquisition tax) or when transferring the tax liability to the recipient of the service.

Input tax that accrues during the start-up phase of the business (i.e. prior to carrying out any transactions), can be claimed through the subsequent tax return (preliminary VAT return) at the tax office (e.g. for investments, drawing up of contract etc.).

Invoice

Prerequisite for the input tax deduction is an invoice. Where services are provided for other entrepreneurs for business purposes, the service provider is obliged to draw up an invoice.

Legal exceptions

In principle, all entrepreneurs are entitled to deduct input tax in the course of their entrepreneurial activities with regard to the VAT amounts shown on the invoice (with the exception of those that are non-genuinely exempt from tax). In order to be able to claim input taxes, small company owners need to opt to apply for standard taxation according to the general principles.

For advance travel services input tax deduction cannot be claimed pursuant to section 23 paragraph 8 of the UStG. Advance travel services are those deliveries and other services provided to third parties by an entrepreneur as part of travel services within the meaning of section 23 paragraph 1 of the UStG (margin taxation) and that directly benefit the traveller (e.g. hotel accommodation).

In principle, it is not possible to deduct input tax for expenditure – with few exceptions – on cars, estate cars and motorbikes. Specific rules also apply for entertainment expenses (e.g. hospitality expenses). Input tax may only be deducted from business meal expenses where it can be demonstrated that these meals were for advertising purposes and far outweighed the professional or business-related reason. See Rz 4823 of the Einkommensteuerrichtlinien 2000 for details regarding the evidence of the advertising purpose and the predominant professional or business-related reason.

Input tax correction

In principle, the circumstances on the delivery date are crucial for the input tax deduction. Where the relevant circumstances subsequently change, a correction must be made to deduct input tax in accordance with the statutory provisions, pursuant to section 12 paragraph 10 to 12 of the UStG.

The adjustment period for input tax for immoveable property (including expenses to be capitalised and the costs of major repairs) is 19 years. i.e. where, in the case of a property making up part of the fixed assets, the relevant circumstances change within the nineteen calendar years following the year of first use, a correction must be made for each year of the change in the amount of one twentieth of the tax deduction already received. Since 31 March 2022, the input tax adjustment period for a subsequent transfer of ownership – except for business premises – due to a claim pursuant to section 15c WGG (including expenses to be capitalised and the costs of major repairs) is ten years. I.e. if a transfer of apartments (tax-exempt sale) is carried out by a company within the meaning of WGG after 31 March 2022, a change in the circumstances relevant for the deduction of input tax occurs. For each year of the change, an adjustment amounting to one tenth of the input tax deduction already claimed must be made.

Legal bases

• Sections 1, 11, 12, 17 and 23 of the Umsatzsteuergesetz (UStG)
• Umsatzsteuerrichtlinien (→ BMF) Rz 1801 and following, in particular Rz 1914 and following (input tax deduction), Rz 2941 and following (travel services)
• Einkommensteuerrichtlinien (→ BMF)