The procedure for deducting, offsetting and refunding VAT is set out in Article 92 of the Value Added Tax Act (VATA).
Under the VAT Act, the result for the tax period is the difference between the total amount of tax payable by the person for that tax period, and the total amount of the tax credit for which the right to deduct has been exercised during that tax period. Where the tax charged exceeds the tax credit, the difference constitutes the result for the period – tax payable.
Where the tax credit exceeds the tax charged, the difference represents the result for the period – tax to be refunded. The registered person determines only the net amount for each tax period – tax payable to the State budget or tax to be refunded from the State budget.
The tax to be refunded shall be offset, deducted or refunded as follows:
1. Where there are other outstanding and unpaid tax liabilities and social security contribution liabilities collected by the National Revenue Agency, arising up to the end of the calendar month in which the tax return is filed, the revenue authority shall set off these liabilities against the tax refund specified in the tax return; for the balance, if any, the procedure set out in point 2 shall apply;
2. Where there are no other outstanding liabilities under point 1, or where their amount is less than the tax refund specified in the tax return, the registered person shall deduct the tax refundable or the balance under point 1 from the tax payable as stated in the tax returns submitted in the following two consecutive tax periods;
3. if, following the deduction referred to in point 2, any tax remains payable, it is due;
4. If, upon expiry of the period referred to in point 2, there is a remaining balance of tax to be refunded, the revenue authority shall set off that balance against any enforceable public claims collected by the National Revenue Agency, or shall refund it within 30 days of the submission of the final return;
5. If the tax refundable, in respect of which a deduction procedure has been initiated, has not been deducted in full at the time of submitting the tax return for the later of the two tax periods, any other tax refundable as shown on a tax return for either of those two tax periods shall be added to it and shall be subject to refund or set-off together with the balance, within the time limit specified in point 4;
- If the conditions set out in point 5 are not met, two further consecutive tax periods for deduction shall commence in respect of the next tax refund specified in the tax return, following the period in which that tax is specified.
In this article, we will not be considering cases of VAT refunds where the requirements of Article 92(3) or (4) of the VAT Act are met.
That was the theoretical part. What does the procedure under Article 92(1) of the VAT Act actually involve in practice?
When you submit a Value Added Tax Return (VAT Return) for the relevant tax period, you are in fact determining:
- the total amount of VAT due (i.e. the amount of VAT as shown in the sales ledger);
- the total amount of the tax credit (this is the amount of VAT as shown in the purchase ledger);
- the result (this may be VAT payable or VAT to be refunded).
- When the result for the period is a VAT refund, there are several things you need to check:
1. Is this current month the first period of a VAT refund procedure?
If, in the previous tax period, the result was VAT payable and actually paid, or if a VAT refund procedure was completed in the previous tax period, then this current month is the first tax period of the deduction procedure pursuant to Article 92(1) of the VAT Act.
For convenience, we will refer to this current month – which is the first tax period of the VAT refund procedure – as Month 1. You should then monitor the results for the next two tax periods, which we will refer to as Month 2 and Month 3.
2. If the result for month 2 is a VAT refund, this is added to the result for month 1 and the procedure that began in month 1 continues.
If the result for month 2 is VAT payable, deduct the amount payable for month 2 from the refundable amount for month 1. If you get a positive number (the refund amount is greater than the amount payable), the deduction procedure started in month 1 continues. If you get a negative number (the refund amount is less than the amount payable), then the carry-forward procedure, which began in month 1, ends with a VAT payable balance.
3. If the deduction procedure, which began in month 1, continued into month 2, check the result for month 3.
If, in month 3, the result is a VAT refund, this is added to the results for months 1 and 2, and the procedure that began in month 1 is concluded with a VAT refund.
If, in month 3, the result is VAT payable, subtract the VAT payable for month 3 from the refundable amount for month 1 (or the balance of the refundable amount for month 1 after deducting the VAT payable for month 2). If the tax credit for month 1 is not fully utilised, the deduction procedure commenced in month 1 concludes with a VAT refund. If the tax credit for month 1 is fully utilised but a tax credit remains from month 2, the deduction procedure started in month 1 concludes, but a new deduction procedure commences from Month 2. If the tax credit for Month 1 is fully utilised and the tax credit for Month 2 is fully utilised, then the deduction procedure that began in month 1 concludes with a VAT liability.
