Deduct eligible are companies that own tax collect and forward it to the tax office. Companies and freelancers who act as small businesses according to Section 19 of the Sales Tax Act are therefore excluded from the input tax deduction.
What is sales tax?
Sales tax and sales tax are two terms for the same type of tax. Consumers know this tax as value added tax, while in the business world the term sales tax is more common. This tax applies wherever there is an increase in value and sales or a service is billed.
With this tax, the state participates in every sale of goods or every invoice for work done. Companies are obliged to pay this tax to the tax authorities. Therefore, they have to show the taxes incurred in the invoice and break them down, for example according to tax rates. There are several tax rates in the Sales Tax Act depending on the type of goods or service, for example 7% or 19% are added to the invoice amount.
One buys a new router in an electronics store. The invoice amount is broken down into:
Net invoice amount: 125.21 euros, the resulting VAT of 23.78 € at a tax rate of 19% and the gross or final price to be paid of € 149.00. make the proper calculations with the use of the sales tax calculator.
A private end consumer or a small business owner pays the invoice amount in full, including sales tax. If the businessman had bought the router for private purposes, the 149 euros would also be her final price. But The businessman needs the router professionally: She is a freelance programmer and entitled to input tax deduction. That is why she keeps the sales receipt so that it can be used for input tax and later in her sales tax and income tax return.
What does entitled to input tax deductible mean?
The input tax deduction is about offsetting the sales tax paid against the sales tax received. The logic behind it: the sales tax is a tax that the consumer pays on the increase in value. The companies that trade in goods, process them and add value are just the stopover. That is why companies and the self-employed are entitled to input tax deduction.
If the invoice recipient is an entrepreneur himself and the invoice goes to the company, he can deduct input tax. A self-employed person first pays the invoice amount including sales tax to the biller. Later he can get the VAT back from the tax office. This happens through the input tax deduction. And that’s why it is said that sales tax is a transitory item for companies. Although companies pay sales tax to their suppliers, they are reimbursed by the tax office. Small businesses are an exception. They are exempt from sales tax according to §19 UStG and therefore act like end consumers, so they are not entitled to input tax deduction.