Tax credit in simple words

A significant share of the revenue part of the state budget is VAT. Value added tax is collected from the manufacturer even before the product is sold to the consumer. VAT is an indirect tax, in which an additional markup occurs at each stage of the product's production - up to the moment of sale. Despite the complex system of calculating this tax, ultimately it is paid by the consumer. Therefore, if explained in simpler terms, it is a price premium paid by the consumer at the time of purchase, but for which the business entity itself is responsible.

What is a tax credit?

When an entrepreneur registers as a VAT payer, he needs to know two terms such as "tax credit" and "tax liability". Let's touch on each of them in more detail. A tax credit is the amount of funds by which a VAT payer can reduce his own tax obligations. Such a credit for the transaction amount is possible when the payer buys goods or services, and in response the seller issues a tax invoice equal to the transaction amount. That is, we are talking about the total amount of VAT on all goods and services purchased by the buyer. Therefore, this concept is also called "input VAT".

Regarding VAT tax obligations, it is also meant the total amount of funds that the taxpayer must pay to the budget. Here, the total number of goods and services sold by the entrepreneur or company is taken into account. This phenomenon is called "output VAT".

Tax credits and liabilities arise in the course of conducting business activities. When the end of the reporting period comes, a total is made based on the amount of tax credits, and then the amount of liabilities is subtracted. It is as a result of the mentioned calculations that it becomes clear what specific amount of VAT the VAT payer must pay to the budget. In the event that the amount of the tax credit is greater than the amount of liabilities, the difference is subject to reimbursement by the state.

To whom the status of a VAT payer may be appropriate?

If your company sells goods or provides services to VAT payers, then the VAT payer status will be very appropriate for you. After all, in cases where you are not a VAT payer, and your counterparty is, he will not be able to get a tax credit. This will mean that the business entity that is your counterparty will not be able to claim that its tax liability will be reduced. Thus, he will have to pay a higher amount of taxes.

Registration limit

As for the VAT payer's registration limit, it can be increased exclusively by the amount of top-up, which will come from his own account. It is impossible to increase the registration amount in any other way. The registration amount, within which the taxpayer can register his tax invoices or adjustment calculations within the framework of the Unified register of tax invoices, is determined according to the formula indicated in clause 200-1.3 of the Code of Civil Procedure. Regarding the submission of declarations for the payment of VAT, this must be done within 20 calendar days of the month immediately following the reporting month.

If you are interested in legal assistance in topics related to tax law, such services belong to the specialization of the company "PRIKHODKO&PARTNERS". We will carefully advise you and provide legal support in those matters where you need it.