Exceptions to input VAT deduction

Small companies

In principle, all entrepreneurs are entitled to deduct input tax in the course of their entrepreneurial activities with regard to the VAT amounts shown on the invoice (with the exception of those that are non-genuinely exempt from tax). In order to be able to claim input taxes, small company owners need to opt to apply for standard taxation according to the general principles.

Advance travel services

For advance travel services input tax deduction cannot be claimed pursuant to section 23 paragraph 8 of the UStG. Advance travel services are those deliveries and other services provided to third parties by an entrepreneur as part of travel services within the meaning of section 23 paragraph 1 of the UStG (margin taxation) and that directly benefit the traveller (e.g. hotel accommodation).

Legal bases

• Taxation of travel services:
  • section 23 of the Umsatzsteuergesetz (UStG)
  • Umsatzsteuerrichtlinien (→ BMF) No. 2941 ff
• Prohibition of input VAT deduction: section 23 paragraph 8 of the UStG

Entertainment expenses

Specific rules also apply for entertainment expenses (e.g. hospitality expenses). Input VAT may only be deducted from business meal expenses where it can be demonstrated that these meals were for advertising purposes and far outweighed the professional or business-related reason.

Legal bases

Details regarding the evidence of the advertising purpose and the predominant professional or business-related reason: Einkommensteuerrichtlinien (→ BMF) No. 4823.

Expenses on cars, estate cars and motorbikes

With a few exceptions, no input VAT can be claimed on cars, estate cars and motorbikes, either for purchasing or renting or for ongoing running or maintenance costs (e.g. fuel, maintenance, repair, toll charges, motorway stickers, train loading), since the services listed are not eligible for input VAT deduction pursuant to the law. Even in cases where the person liable for payment uses a car 100 per cent for business purposes (e.g. as a sales representative), the regulations on input VAT deduction apply.

Exceptions to the input VAT exclusion are, however, driving school vehicles, demonstration vehicles and vehicles that are intended exclusively for commercial resale, and those vehicles which are used for commercial transport of persons or commercial leasing at least 80 per cent of the time.

In the case of vehicles that are explicitly classified as vans, delivery vans, flatbed trucks or small buses ("fiscal commercial vehicles") and that therefore are not classed as cars or estate cars, there is the option to deduct input tax. An up-to-date list of vans, delivery vans, flatbed trucks and small buses that are recognised for tax purposes, together with the Regulation on which this is based can be found on the Federal Ministry of Finance’s website.

In principle, evidence of whether these requirements are met for a specific vehicle would therefore be provided by the person liable for taxation, who is claiming input tax deduction for a particular vehicle. In the interests of legal certainty and administrative simplification, the Federal Ministry of Finance does, however, recognise specific vehicle types such as vans, delivery vans, flatbed trucks and small buses within the meaning of this regulation. For these types of vehicles, the person liable for taxation is not required to provide evidence.

Where tax deduction is claimed for vehicles eligible for tax deduction, in order to expedite proceedings – in particular during the VAT refund procedure – it is recommended that documents (copy of vehicle registration document/data sheet/vehicle log book) are submitted together with the original invoices when the application is made; these documents will show that the vehicle is not excluded from the right to deduct tax.

There is an exception to the input tax exclusion for cars and estate cars for those vehicles that have CO₂ emissions of 0 grams per kilometre (e.g. those with exclusively electric or electro-hydraulic engines). The appropriateness threshold is, however, significant for these cars and estate cars.

Further links

List of vans, delivery vans, flatbed trucks and small buses eligible for input tax deduction (→ BMF)^{German text}

Legal bases

• Prohibition of input VAT deduction: section 12 paragraph 2 (2) (b) of the Umsatzsteuergesetz (UStG)
• Exception to the input tax exclusion for CO₂ emissions of 0 grams per kilometre: section 12 paragraph 2 (2a) UStG
• Appropriateness threshold:
  • section 1 paragraph 1 (2) (a) or section 12 paragraph 2 (2) (a) UStG
  • Verordnung des Bundesministers für Finanzen betreffend die Angemessenheit von Aufwendungen im Zusammenhang mit Personen- und Kombinationskraftwagen (PKW-Angemessenheitsverordnung)

Legal bases

• Umsatzsteuerrichtlinien (→ BMF) in particular No. 1801 ff (input VAT deduction)