Business expense and VAT – when can you claim it back?

VAT is considered as a business expense in various situations related to the status of the business (VAT or non-VAT). It can also relate to to the specific purchase of goods and services. Moreover, businesses and entrepreneurs not identified for VAT purposes, with the right to deduct input VAT, pay VAT to the seller on each purchase. As a result, this amount increases the cost of the goods or services. However, for VAT-registered taxable persons, VAT arises as a charge to the business in certain cases. For instance, one example is the payment of accommodation for an employee on a business trip. Does this interest you? Do you need tax advices? Contact us and schedule a meeting with one of our experts! You can call us on +386 40 530 718 (Viber/WhatsApp) or email us at data@data.si. Get in contact in no time!

VAT non-taxable or small taxable persons

Who must pay and who must not pay VAT? In essence, if the business does not identify for VAT purposes, which entitles it to deduct VAT paid of goods and services, must pay VAT. It also pays VAT if it receives invoices from taxable sellers. This is considered then as a business expense. In addition, VAT as a business expense counts even for small taxable persons, which supply services to a customer in another EU country.

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Taxable persons entitled to deduct input VAT

For the most part, taxable persons who do not identify for VAT purposes and have the right to deduct input VAT separate the amount of the base, i.e. the cost. They also separate the amount of VAT in the invoices they receive. Still, because of special cases in the Law on Value Added Tax (ZDDV-1), it occasionally happens that VAT is included as a business expense. For that matter the

Article 66 of the VAT Act-1 sets the main limitations. It stipulates that the taxable person may not deduct input VAT from:

• yachts and boats for sport and pleasure, fuels and lubricants and spare parts, except from vessels for the pursuit of the business of passenger and goods transportation;
• aircraft, fuels and lubricants and spare parts and services closely related thereto, other than aircraft used for the purpose of carrying out the activities of transporting passengers and goods, hiring and leasing for resale;
• passenger cars and motorcycles, with the exception of vehicles for transportation of passengers and goods; hire and lease and for resale; vehicles used in driving schools for the pursuit of a driving training program;  vehicles for the regular public transport; and special purpose personal vehicles exclusively for the transport of the deceased (exception relating to electric vehicles);
• entertainment costs (where only the costs of entertaining business and social contacts are considered as entertainment costs);
• the cost of meals (including drinks) and accommodation; other than the costs collected by the taxable person in making these supplies in the course of his business.

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VAT as a business expense – purchase of immovable property

To continue, another example is the purchase of a new property. Let’s say that the taxable person classifies it as investment property for rent on a long-term basis. Then, as the sale of the new building is a VAT turnover, the seller will charge the corresponding VAT (9.5% or 22%). As a result, as the taxable person will make an exempt turnover in respect of the investment (Article 44 of the VAT Act-1), he is not entitled to deduct input VAT. Therefore, the VAT will be an business expense, or the amount of the VAT will increase the value of the real estate under tangible fixed assets. Does this help you? Do you want to know more about taxes in Slovenia? We also write about which income is exempt from income tax! Where does your income belong?

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