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Practical Handbook VAT 2021

Who can make the deduction

Only those who meet the following subjective requirements can deduct VAT :

  1. Have the status of entrepreneurs or professionals.

  2. Have begun to habitually carry out the supply of goods or services corresponding to their business or professional activities.

However, allows the deduction of the tax paid or paid prior to the commencement of the normal performance of the supplies of goods or services relating to the activity.

Taxable persons who jointly carry out taxable and non-taxable transactions in accordance with the provisions of Article 7.8 of the Law on VAT in relation to public entities, may deduct the amounts paid for the acquisition of goods and services used simultaneously to carry out both transactions on the basis of a reasonable and uniform criterion for allocating the amounts corresponding to the goods and services used to carry out the taxable transactions (or non-taxable transactions carried out outside the territory of application of the tax which would give rise to the right to deduct if they had been carried out in that territory).

For this purpose, a reasonable and homogeneous criterion for the allocation of the charges for goods and services used simultaneously for both types of transactions may be the proportion which the total amount, excluding VAT, of the supplies of goods and services of the taxable transactions represents in each calendar year of the total income of the taxable person from all his activities.

Obviously, the amounts paid for the acquisition or importation of goods or services intended exclusively for transactions not subject to Article 7.8 of the Law on VATare not deductible.

Similarly, the general deductibility criteria shall apply and, where appropriate, the pro rata rule shall apply.

The provisions of this section shall not apply to public service management activities under the conditions set out in letter a) of Article 78.Dos.3.º of the Law on VAT.