When submitting a VAT return for a certain tax period, the taxpayer has the right to opt for a refund of the preliminary tax (the difference between input and output VAT), or to use it as a tax credit in the following period.
In any case, the taxpayer has the right to deduct the positive difference between input and output VAT, and in this text we address the requirements for the VAT deduction, their mandatory fulfilment, as well as the relevant tax control.
Who has the right to deduct the preliminary tax?
The right to the preliminary tax deduction, pursuant to Article 28 of the Law on Value Added Tax, may be effected by a taxpayer if the goods procured in the Republic or from import, including the supply of equipment, as well as structures and for performing an activity and economically divisible entireties within the framework of such structures, and/or the received services, are used or will be used by him for the purpose of trade of goods and services:
- which is taxable by the VAT;
- for which, in conformity with Article 24 of this Law, there exists an exemption from paying the VAT;
- which is effected abroad, if such trade would have entailed the right to preliminary tax deduction, in the event of its being effected in the Republic of Serbia.
How does a taxpayer effect the right to the preliminary tax deduction?
The right to the preliminary tax deduction may be effected by a taxpayer if he is in possession of:
- an invoice issued by another taxpayer in the trade regarding the amount of the preliminary tax, in conformity with the present Law;
- a document on importation of goods whereby VAT is indicated and a document which confirms that the indicated VAT has been paid during importation.
What is the amount of preliminary tax that a taxpayer may deduct?
Within a tax period for which the above stated requirements are met, the taxpayer may deduct the preliminary tax from the VAT owed, relating to:
- calculated and indicated VAT for the trade of goods and services that has been done – or that will be done – to him by the other taxpayer in the trade;
- the VAT that has been paid on the occasion of imports of goods.
When does a taxpayer acquire the right to deduct preliminary tax?
The right to deduct preliminary tax arises on the day when all the above requirements are cumulatively met, and if only one of them is not met, the taxpayer will not exercise the right to deduct preliminary tax.
In the practice of tax control related to checking the fulfilment of the requirements for deduction of preliminary tax, it usually happens that it gets subsequently determined that a requirement concerning the supply of goods or the performance of services by another VAT payer is not met. In such cases, the Tax Administration determines whether the taxpayers resorted to issuing fictitious invoices in order to deduct the preliminary tax and acted in agreement with the issuers of such invoices, or whether the VAT taxpayers were in no way familiar with the fact that their service were not provided by another VAT payer.
When performing the tax control to determine the fulfilment of the requirements for a deduction of preliminary tax, the Tax Administration will inspect all tax documentation, business books, invoices, taxpayer’s statement, photocopies of invoices of all suppliers, delivery notes, etc. Here it is important to keep in mind that, in case the Tax Administration performs a control of the taxpayer, it is not enough for the taxpayer to submit only a photocopy of its supplier’s invoice as proof of a turnover/service, but also a reliable proof of the purchased/sold goods or performed services, such as, for instance, a delivery note.
Moreover, it is very important to know that a taxpayer is obliged to check whether all its suppliers who show VAT in the invoice have a registered Tax Identification Number, which information is publicly available on the Tax Administration website. Therefore, VAT payers who use the deduction of preliminary tax must be familiar with the requirements under which they can exercise this right, and, if the Tax Administration conducts tax control with the same VAT payer, to provide and submit evidence to support compliance with these requirements.