3 Min.

How to Get Refunded with the Input Tax Deduction (Vorsteuerabzug)

It sounds very complicated at first, but it is not in principle.

For years, new companies have sprouted from the ground. Especially in big cities like Berlin, Hamburg and Munich, there seems to be no stopping them. More and more people want to realise their dream of independence and not just work for the dreams of another.

In the process, numerous hurdles are put in the way for young entrepreneurs, especially in Germany. Anyone who has never dealt with the subject of “taxes” will quickly reach their limits. What must be considered and what can be deducted for tax purposes?

In this context, it also arises again and again the ignorance regarding the deduction of input tax (Vorsteuerabzug). It sounds very complicated at first, but it is not in principle. With this process, founders can save a lot of money. How to do that and what has to be considered, you will find out here.

What is the input tax deduction (Vorsteuerabzug)?

Of course, entrepreneurs have high initial costs. For example, they pay sales tax (Umsatzsteuer) on purchases of goods and services. With the input tax deduction, the tax can be reclaimed.

Most companies charge VAT to another company. However, only the end user has to pay this tax. Business partners can therefore have the input tax reimbursed by the tax office. The only prerequisite for this is that the company is also entitled to deduct input tax.

Who is entitled to deduct input tax (Vorsteuerabzug)?

Entrepreneurs who levy sales tax (Umsatzsteuer) on the sale of their own services or goods may claim input tax. However, there are also criteria that make a deduction of input tax impossible.

These include

  • Item is used for private use, not for operation
  • Sales are generated which are themselves VAT-free
  • VAT is not shown in the invoices (small business owners - Kleinunternehmer)
  • Invoice is incorrect

Vorsteuerabzug und die Steuererklärung

Founders and Small Business Owners (Kleinunternehmer)

Whether an entrepreneur can benefit from the deduction (Vorsteuerabzug) or not often depends on the development phase of the company.

Start-up phase: even in the preparatory phase (without registering with the municipality), input tax deduction for costs can be claimed in the context of future assessments.

Small business owner (Kleinunternehmer): after founding, he must state whether he would like to be regarded as a so-called small entrepreneur within the meaning of the corresponding provision in the sales tax law - Umsatzsteuergesetz (turnover less than € 17,500)

What must be considered in the input tax deduction (Vorsteuerabzug)?

There are many peculiarities that small business owners (Kleinunternehmer) and founders should consider. Thus, an entrepreneur may deduct only the input tax, if this has received a service or an invoice with VAT.

Even in the case of invoices without sales tax (Umsatzsteuer), it must be remembered that the recipient assigns the tax directly to the tax office. In this context, a pre-tax deduction (Vorsteuerabzug) may be applied for in the same amount (concerns mainly invoices of construction work, etc.).

Furthermore, there is a special feature for German-based and taxable entrepreneurs who pay VAT in EU / EEA countries. You can have the tax refunded by the foreign tax office. Corresponding applications must always be submitted by 30.09. the following year in electronic form.

It can certainly be very difficult, as a business owner to get your head around the rules and regulations of the input tax deduction. However, it is certainly worth learning as much information as you can about this tax deduction so that you can make sure that you get the most benefits out of it.