The conditions and procedure for exercising the right to deduct a tax credit are regulated in the Value Added Tax Act (VAT Act).
A registered person is entitled to a tax credit for the tax due from him for: goods or services received by him under a taxable supply; a payment made by him before the occurrence of a taxable event for a taxable supply; an import made by him; the tax due from him as a payer.
When the goods and services are used for the purposes of the taxable supplies made by the registered person, the person has the right to deduct the tax for the goods or services that the supplier – a person registered under this law – has supplied to him or is about to supply to him, the tax charged upon import of goods and the tax required from him as a payer.
The VAT Act provides for restrictions on the right to deduct a tax credit. The right to deduct a tax credit does not exist, regardless of whether the conditions for supplies with the right to deduct a tax credit are met, when: the goods or services are intended for making exempt supplies; the goods or services are intended for free supplies or, more generally, for activities other than the person’s economic activity; the goods or services are intended for representational or entertainment purposes; in other specific cases.
In view of the above, the right to deduct a tax credit is directly dependent on the supplies that the registered person makes and, in order for the right to deduct a tax credit to exist, it is necessary for the goods or services received to be used for subsequent taxable supplies. Supplies within the framework of the registered person’s economic activity, which have a place of performance outside the territory of the country, but which would be taxable if they were carried out within the territory of the country, are also considered taxable supplies. Therefore, for goods and services received through a VAT identification number, there is a right to a tax credit, as long as they are for the needs of the taxable independent economic activity of the person (with a place of performance outside the territory of the country) and do not fall within the restrictions provided for in the VAT Act.
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