- Challenges in VAT Deduction: Many accountants struggle with correctly calculating the VAT coefficient, particularly for entities that engage in infrequent financial transactions, such as intra-group loans or derivative contracts. These transactions can limit a taxpayer’s right to deduct VAT if not properly accounted for.
- Basic Rules for VAT Deduction: Taxpayers must separately determine input VAT amounts related to deductible and non-deductible activities. If separation is not possible, a proportion based on the previous year’s turnover is applied, excluding turnover from certain VAT-exempt services. A proportion exceeding 98% may qualify as 100% if non-deductible VAT is below a specified threshold.
- Importance of Accurate Calculation: Incorrect VAT coefficient calculations can lead to significant tax implications, including limitations on VAT deductions, adjustments to VAT settlements, and potential tax arrears with interest. Tax authorities can audit calculations for up to five years, highlighting the necessity for businesses to verify their VAT sales coefficient proactively to avoid future complications.
Source MDDP
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