Skip to main content

27.5 VAT on Purchases: Input VAT Recovery

Understanding Input VAT​

Input VAT (TVA récupérable) is the VAT you pay on your business purchases. If you are VAT-registered and the purchase is for business purposes, you can typically recover (claim back) this VAT.

When Can You Recover Input VAT?​

You can recover input VAT when:

  1. VAT-Registered: You are registered for VAT
  2. Valid Invoice: You have a valid VAT invoice from supplier
  3. Business Purpose: Purchase is for business use (not personal)
  4. Taxable Activity: Purchase relates to your taxable business activities
  5. Not Excluded: Purchase is not specifically excluded from recovery

Recording Input VAT​

Purchase on Credit​

Transaction: Purchase €117 of inventory on credit (€100 + €17 VAT)

PCN Accounting:

  • Debit: Account 601 (Purchases) - €100.00
  • Debit: Account 44551 (Input VAT recoverable) - €17.00
  • Credit: Account 401 (Suppliers) - €117.00

Purchase with Cash Payment​

Transaction: Purchase €234 of equipment, paid by bank (€200 + €34 VAT)

PCN Accounting:

  • Debit: Account 218 (Equipment) - €200.00
  • Debit: Account 44551 (Input VAT recoverable) - €34.00
  • Credit: Account 512 (Bank account) - €234.00

Input VAT Recovery Process​

Step 1: Identify Recoverable VAT​

  • Review all purchase invoices
  • Identify VAT amounts
  • Verify invoices are valid (include VAT number, correct rate)

Step 2: Record in Accounting System​

  • Enter invoices into accounting system
  • Allocate to appropriate expense accounts
  • Record input VAT in Account 44551

Step 3: Include in VAT Return​

  • Sum all input VAT for the period
  • Include in VAT return calculation
  • Offset against output VAT

Step 4: Receive Refund (if applicable)​

  • If input VAT exceeds output VAT, receive refund
  • Refund processed by tax authorities
  • Usually received within 4-6 weeks

Non-Recoverable Input VAT​

You cannot recover input VAT on:

  1. Personal Expenses: Purchases for personal use
  2. Entertainment: Business entertainment (with exceptions)
  3. Motor Vehicles: Cars (with exceptions for commercial vehicles)
  4. Exempt Supplies: Purchases related to VAT-exempt activities
  5. Blocked Items: Items specifically blocked from recovery

Partial Recovery​

For purchases used partly for business and partly for personal use, you can recover VAT only on the business portion:

Example:

  • Mobile phone: €234 (€200 + €34 VAT)
  • Business use: 70%
  • Personal use: 30%
  • Recoverable VAT: €34 × 70% = €23.80

Input VAT on Capital Purchases​

Input VAT on capital purchases (equipment, vehicles, buildings) is recoverable:

Example:

  • Equipment purchase: €5,850 (€5,000 + €850 VAT)
  • Recoverable VAT: €850 (full amount, if for business use)

Note: Large capital purchases can create significant input VAT, which may result in VAT refunds.

Input VAT on Services​

Input VAT on services (accounting, legal, consulting) is recoverable:

Example:

  • Accounting services: €1,170 (€1,000 + €170 VAT)
  • Recoverable VAT: €170

Luxembourg Compliance Note​

Important Requirements:

  • Keep all invoices with VAT shown separately
  • Verify VAT numbers on supplier invoices
  • Record input VAT in Account 44551 (PCN)
  • Include in VAT return within time limits
  • Time limit: Generally 3 years to claim input VAT

Common Issues:

  • Missing invoices: Cannot recover VAT without valid invoice
  • Invalid VAT numbers: May indicate fraud or errors
  • Personal expenses: Cannot recover VAT on personal purchases
  • Late claims: May lose right to recover if too late

Think It Through​

Marie purchases €1,170 of kitchen equipment (€1,000 + €170 VAT) and €234 of personal items (€200 + €34 VAT) on the same invoice. How should she record this? Can she recover all the VAT?

Concepts in Practice​

Input VAT Recovery Example

Le Petit Bistro monthly purchases:

Business Purchases:

  • Food inventory: €2,340 (€2,000 + €340 VAT at 17%)
  • Equipment maintenance: €585 (€500 + €85 VAT at 17%)
  • Utilities: €234 (€200 + €34 VAT at 17%)
  • Total Input VAT: €459

Sales (Output VAT):

  • Food sales: €5,850 (€5,000 + €850 VAT at 17%)
  • Output VAT: €850

Net VAT Payable:

  • Output VAT: €850
  • Input VAT: €459
  • Net VAT to Pay: €391

Marie can recover €459 of input VAT, reducing her VAT liability from €850 to €391.