VAT deductions – what can you reclaim?
Input VAT can be deducted on purchases for use in the registered business. But not all VAT on a company's costs is deductible: catering, entertaining, gifts above the trivial-value limit and passenger cars are blocked, mixed activity requires apportionment, and a payment of NOK 10,000 or more has to go through a bank for the deduction to survive.
The general rule
A registered taxable person is entitled to deduct input VAT on purchases that are for use in the registered business. In practice, check three things: that the business is entered in the VAT Register, that the cost has a sufficient connection to the VAT-liable activity, and that the input VAT can be documented. Where the business has turnover that is zero-rated, such as certain forms of export, it can still have a right to deduct. That has to be distinguished from activity that is outside the scope of VAT, where the right to deduct falls away.
The cost has to be for use in the business
A purchase does not have to physically form part of what you sell for the VAT to be deductible. Through several decisions the Supreme Court has held that the cost has to be relevant to, and have a close and natural connection with, the VAT-liable business. Ordinary running costs such as accounting, software, office supplies, marketing and necessary equipment therefore normally give a right to deduct where they are used in VAT-liable activity.
Mixed activity has to be apportioned
Where the business has both VAT-liable and out-of-scope turnover, costs first have to be split into three groups: Costs only for the VAT-liable part: normally a full deduction. Costs only for the out-of-scope part: normally no deduction. Shared costs used in both: a proportionate deduction. Turnover can be used as the apportionment key for shared running costs where it reasonably reflects actual use. Where it does not, another key has to be used.
The 5% rule
Where out-of-scope turnover does not normally exceed 5% of the business's total turnover, there is as a general rule a full deduction on shared purchases. Conversely, there is as a general rule no deduction on shared purchases where turnover from the registered business does not normally exceed 5% of total turnover. The rule works both ways, and it spares a small element of one kind of turnover from triggering a full apportionment exercise.
Costs you normally cannot deduct
Typical examples are catering, entertaining, board and certain benefits in kind to owners and employees, gifts and promotional items above the trivial-value limit, certain costs connected to housing and welfare purposes, and passenger cars. For gifts and goods or services given away for promotional purposes, NOK 100 or less counts as trivial value under the VAT Regulations. Note that the tax rules for the same items are different – see Benefits in kind. A gift can be tax-free for the employee and still give the company no VAT deduction at all.
Can you deduct VAT on a car?
For a passenger car the general answer is no. The deduction is normally blocked on purchase, leasing, running and maintenance – even where the car is used in the business. There are exceptions where the vehicle is used as stock in trade, in a vehicle hire business, or as a means of transporting people for payment. A class 2 van is normally not covered by that particular restriction. That still does not mean an automatic 100% deduction: where the van is used entirely in VAT-liable activity there can normally be a full deduction, but where it is used both in the business and privately the deduction has to be assessed and can be proportionately limited. The whole economics of the car, with company car taxation and the mileage allowance, is in Company car or private car
The invoice has to document the VAT
To claim input VAT as a deduction, the purchase has to be documented. An ordinary invoice has to state the parties, what was supplied, the consideration and any VAT. A Norwegian VAT-registered seller's organisation number is normally followed by «MVA». Where you find an error or omission on a supplier's invoice, ask the supplier for corrected documentation before deducting the VAT. See also Booked the wrong VAT rate
Payments of NOK 10,000 or more have to go through a bank
Where the total payment for a purchase is NOK 10,000 or more, the payment must as a general rule go through a bank or an undertaking authorised to provide payment services, for the right to deduct VAT to survive. Splitting one invoice or contract into several smaller cash payments does not help – the threshold is measured against the purchase, not the payment.
Costs from before VAT registration
Where the business had costs before it was VAT-registered, it can in many cases still get a deduction under the rules on retrospective VAT settlement. The conditions are in VAT registration
The checklist before you deduct
Is the business VAT-registered? Is the cost used in the VAT-liable activity? Does it relate to both VAT-liable and out-of-scope activity? Is it covered by a specific restriction? Do you have sufficient documentation? Has a payment of NOK 10,000 or more gone through a bank? If you are in doubt about a particular purchase, we can assess the right to deduct, the documentation and the treatment in the VAT return.
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This is general guidance, not advice on your specific case. Deadlines, rates and amounts change – always check the current rules, or get in touch with us.
More on value added tax
- VAT registration – when does a business have to register?
- VAT on services to and from abroad – how do you invoice correctly?
- VAT on imported goods – how it works
- The VAT adjustment rules for real property – how do they work?
- Voluntary VAT registration for letting property – when is it possible?
- VAT exemptions for health, education and culture – what applies?
- VAT periods and deadlines – when is the VAT return due?
- The annual VAT return – when can you apply for an annual period?
- Bad debts – when can you recover the VAT?
- VAT on winding up and bankruptcy – what has to be settled?
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