Which companies are entitled to input tax deduction?

In principle, all companies are subject to VAT and at the same time are entitled to input tax deduction. The only exceptions are small business owners, whose status depends on the level of their sales in the previous year and on the expected sales in the current year. 

The companies entitled to input tax deduction include the following types of companies in particular:

  • Sole proprietorship as a non-merchant
  • Small business owners
  • freelancer
  • Sole traders
  • Civil law society GbR
  • Open trading company OHG
  • Limited partnership KG
  • Limited liability company GmbH
  • Entrepreneurial company limited liability UG
  • Corporation
  • GmbH & Co. KG and more

What are the requirements for companies to deduct input tax?

Eligible for input tax deduction

In order for an input tax deduction to be possible, certain requirements must be met. In order for companies to be able to use the input tax deduction, the following four requirements must be met:

There is a company or an entrepreneurship in front of input tax deductible are only entrepreneurs in the sense of the sales tax law, as stated in § 2 UStG. A characteristic of entrepreneurship is therefore the independent exercise of a commercial or professional activity that leads to income. Using the sales tax calculator is important here.

Input tax payment for business purposes

Companies are only entitled to input tax deduction if they deduct input tax paid for supplies or services that they have acquired for the company. The delivery or service must not have been purchased for private use.

Delivery or service by another company

The input tax deduction only applies to expenses that the company makes to other companies subject to VAT. The supplier or service provider must also be entitled to deduct input tax so that he can show VAT on his invoice. 

The supplied company can only claim input tax if the supplier is allowed to and does so

The invoice must be correct in order for the tax office to recognize an input tax deduction, the invoice for the input tax paid must be presented as evidence. This must show the VAT amount separately. In addition, the invoice document must contain all mandatory information required by law, such as § 14 UStGwith an invoice amount of less than 250 euros, the tax amount does not need to be stated. 

In addition to the addresses of the invoice issuer and recipient, tax number, invoice number and date, the invoice item with the exact description and the time of delivery or service, and in particular the exact execution of the invoice with tax ID. For the correct tax identification it is necessary that the biller breaks down the invoice amount according to the net amount, tax rate and tax amount as well as gross amount. If the invoice is missing mandatory information and, in particular, the itemized tax ID, or if these are incorrect, the invoice is not valid under tax law. As a result, the invoice will not be recognized by the tax office as evidence of the input tax deduction.