Why is there so little deductible VAT?

Value added tax can seem complicated at first, because it is not very often encountered in daily life. Value added tax is an indirect tax whose final payer is the consumer.

How does the VAT deduction work?

Briefly, VAT is deducted as follows:

• You buy a product for 1,000 euros and pay VAT at 24 percent, i.e. 240 euros.
• You sell the product for 2,000 euros and receive VAT of 24 percent, i.e. 480 euros.
• You can deduct 240 euros from the value added tax you paid (480 euros).
• You must pay the remaining value added tax of 240 euros to the taxman.

The right to deduct VAT is available when:

• The seller of the product or service is liable for VAT.
• The purchased product or service is subject to VAT.

VAT cannot be deducted in the following cases:

• When you buy services from a small business that is not liable for VAT, you cannot deduct the VAT yourself. This is logical, because the VAT-exempt entrepreneur's invoice does not include VAT anyway.
• If you buy the product for your own personal use, you cannot deduct the VAT either. This also includes the VAT deduction for the company car. If the car is only used for the company's business, its VAT can be deducted. However, if you drive between work and home, for example, the VAT cannot be deducted. So in practice, you can deduct the car's value added tax if you are a taxi driver, driving instructor or run a car rental company.
• Value added tax cannot be deducted from representation costs either, i.e. from supporting persons outside your company. Instead, the VAT on small-scale negotiation costs can be deducted.

Why then is there so little tax to be deducted?

The amount of deductible VAT varies greatly in different industries. For example, if you work as a consultant and only sell your own work, you don't have large purchases that you can reduce.

Instead, for example, a company engaged in buying and selling activities accumulates considerably more deductible VAT. The same situation applies to manufacturing companies that buy a lot of raw materials and reprocess them into products.