Is it possible to deduct VAT from expenses incurred before registration?
The taxpayer is entitled to deduct input VAT from expenses incurred before the commencement of business and before registration with the tax office. This was confirmed by the Head of the National Revenue Information Service (KIS Head) in a private ruling of October 22, 2020 (case no. 0114-KDIP1-3.4012.517.2020.1.KP).
The case concerned a natural person, who concluded a contract for the purchase of a non-residential property with a development company. Next, the applicant signed a tenancy agreement with another company, which was to use the premises for business purposes after the completion of construction and commissioning. Next, the applicant signed a lease agreement with another company. Since the signing of the real estate purchase agreement, i.e. since 2016, the future taxpayer has received prepayment invoices from the developer covering 100% of the value of the purchased non-residential property. It is worth mentioning that on the invoices the purchaser was designated by the name and surname, but without an NIP (tax identification number) or PESEL number. Due to a delay in the building works, the buyer did not become an outright owner until August 2020, which caused a termination of the tenancy agreement by mutual agreement of the parties. The new owner intended to use the property for private lease purposes and planned to register as an active VAT taxpayer in order to be able to issue VAT invoices for rent. At the time of conclusion of the agreement for the purchase of the property in question, the buyer was neither registered as an active VAT payer nor did he conduct business.
The most important part of the application concerned the right to deduct input tax from VAT invoices issued and received in the periods preceding the registration Relying on Art. 86 (1) of VAT Act, the property owner was of the opinion that the registration as an active VAT taxpayer does not constitute a condition for the acquisition of the right to deduct tax, but is merely a formal prerequisite, upon fulfilment of which one can use the right already vested in them. The right to deduct VAT included in the price of purchased goods or services is vested in taxpayers to the extent that such purchases are related to activities subject to this tax.
The Head of the National Revenue Information Service confirmed that standpoint, indicating that what entitles one to reduce the output tax – which directly results from Art 86 (10b) (1) of the Act – is the receipt of an invoice or customs document, whereas the potential subsequent settlement of the tax is a consequence of the already acquired right to reduce the amount of tax due. The essence of an invoice is to identify an actual economic transaction, so the lack of an NIP number, with the remaining details of the contracting party provided, is only a technical defect which does not preclude the transaction from being verified or the purchaser from being identified. Therefore, a taxpayer has the right to reduce the amount of tax due by correcting the tax return for the period in which the right to reduce the amount of due output tax arose, but no later than within 5 years from the beginning of the year in which the right to reduce the amount of output tax arose.
Jakub Janicki, Tax Consultant, ATA Tax Sp. z o.o.
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