The sum of deductible VAT is low - Why?

The VAT or value added tax may seem difficult at first as it rarely comes up in your everyday life. But don't worry, in most cases it's much simpler than you would think!

VAT is a tax related to consumption. It must be paid when goods and services are purchased.  When business enterprises sell goods and services, they must add VAT to the price. 

In fact, the consumer is the real payer of VAT, because VAT is part of the price the consumer must pay for goods or services.  

How do I deduct VAT in my business taxation?

Here's how VAT deductions are done in a nutshell: 

1. You buy a product for 1000€ of which 25,5% or 255€ is the VAT with the general VAT rate  (1000€ x 0,255 = 255€)
2. You sell the product for 2000€ of which 25,5% or 510€ is VAT with the general VAT rate (2000€ x 0,255 = 510€)
3. You can deduct the VAT of the original purchase sum 255€ from the 510€ VAT of your sale (510€ - 255€ = 255€)
4. You pay the Tax Office 255€ VAT of your sale instead of the full 510€ in your business taxation

You are eligible for VAT deductions when:

• The seller of the product or service is VAT liable
• The purchased product or service is bought for business use and your business is VAT liable

VAT cannot be deducted if..

• You buy products or services from a small business who is not VAT liable. VAT rate for small scale business is 0% so there's no actual sum of VAT to deduct from their invoices.
   
• You purchase a product or service for your private use and not as a business expense. Only purchases made for business use are VAT deductible. This applies to vehicles as well: If the vehicle is added to your accounting for business use, you can deduct VAT of it's expenses. If the vehicle is not added to your accounting and is used both for private and business use, you cannot deduct VAT. You can read more about adding a vehicle to your accounting here!
   
• the expenses are entertainment expenses (entertaining people outside your business). The VAT of minor negotiation expenses are possible to deduct

But why is the deductible amount of VAT so small?

The actual amount of deductible VAT varies depending on the industry and line of work. If you're a consultant and invoice for your work, you most often do not have large expenses of which to deduct VAT. 

A business which primarily (re)sells products most often cumulates more expenses of which VAT can be deducted. The same applies to businesses which buy a lot of (raw) material and manufacture products out of these materials.