Today, on our journey to better understand VAT, we will delve into the exciting and mysterious world of VAT tax credit.
In VAT, the problem – as a philosophical exploration – lies in the mystery of the tax credit. But what is this? While the term is commonly used, sometimes, just sometimes, it seems as understood as the origin of the powers of the X-Men.
However, you don’t need a superhero to understand what it is, how it operates, and when you are entitled to it. The VAT tax credit, put simply, arises when you purchase something for your business and pay value-added taxes. This is when you can claim a portion of those taxes paid as a tax credit. The moment of making the purchase and the VAT included in it is a “VAT tax credit.”
For a business, it’s like getting a refund for those taxes paid on all purchases. That refund or deduction is applied to your future tax payment, to the VAT you charge on your sales. It’s like finding money in your pocket that you forgot you had. This offsetting effect is what we defined in previous articles as “VAT neutrality”. In more legal terms, it is your right as a taxpayer to claim what belongs to you.
