The principle: the expense has to serve your taxed activity
You reclaim the VAT on a purchase to the extent that it serves your VAT taxed activity. A purely private purchase gives no right at all, a mixed purchase gives a partial one.
If you are under the VAT exemption scheme, you do not charge VAT and you do not reclaim it either. That is the trade off for the administrative simplicity of the scheme.
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Activity fully subject to VAT: full deduction in principle, except for the statutory exclusions.
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Partly exempt activity: deduction limited to the taxed proportion.
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Identifiable private use: the private share drops out of the calculation.
The right to deduct runs on a clock. A forgotten invoice can still be picked up, but not forever: the deadline runs to the end of the third calendar year following the one in which the right arose.
No compliant invoice, no deduction
A till receipt or a bank statement is not enough. You need an invoice in your company's name, carrying the mandatory details.
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Your name, your address and your VAT number.
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The same details for the supplier, with their VAT number.
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The date, a sequential number and a description of the goods or services.
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The taxable base, the rate applied and the VAT amount, per rate.
Ask for the invoice at the moment of purchase. Chasing one six months later, when the supplier has changed systems, is the quickest way to lose the deduction.
Cars and fuel
For passenger cars, deductible VAT is capped at 50 %, even when business use is higher. The cap covers the purchase or the lease, but also fuel, servicing and repairs.
Three methods exist to set the real percentage: a trip log, a semi flat rate formula based on the home to work distance, and a general flat rate of 35 %. Whichever you pick applies consistently across the year.
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The 35 % flat rate avoids keeping any log, but it costs you money as soon as you drive a lot for the business.
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The trip log demands discipline and gives the most accurate percentage.
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Light commercial vehicles follow separate rules and escape the 50 % cap in certain cases.
Do not confuse the VAT deduction with deductibility for income tax: those are two different calculations, with different percentages, on the same invoice.
Costs that give no right to deduct
Some expenses are excluded by law, however genuinely professional they are. This is where good faith mistakes happen most often.
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Restaurant and hotel costs: the VAT is not deductible, not even for a meal with a client.
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Entertainment costs, for example an event held for your business contacts.
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Tobacco and spirits, unless they form part of the stock you resell.
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Business gifts, unless they cost less than 50 euro excluding VAT per recipient per year.
A business lunch stays partly deductible for income or corporate tax. Only the VAT is lost, not the whole cost.
Mixed use costs
Phone, internet subscription, computer, home office. These items serve both lives, the professional and the private one, and the VAT is reclaimed in proportion to business use.
The percentage has to be defensible. A round number picked out of the air rarely survives ten minutes of questioning, a figure based on floor area or on a usage log holds up well.
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Home office: the proportion rests on the professional floor area compared with the total area.
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Phone and internet: back the percentage with observable real usage.
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Computer equipment: separate the device kept for the business from the one the family shares.
Keep a dated written note explaining your calculation method. That document is often what makes the difference during an inspection.
Stop leaving money behind
VAT that goes unclaimed is almost always lost because the invoice went missing, not because the right did not exist.
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Your purchase invoices are imported, read and filed by expense category.
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Rates and deduction percentages are set once per category, then apply on their own.
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The purchase journal is ready for your accountant at any time, with the documents attached.
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The VAT balance in the making stays visible, so filing day holds no surprise.
Frequently asked questions
Can I reclaim the VAT on a meal with a client?
No. VAT on restaurant and hotel costs is excluded from the right to deduct, even when the meal is clearly professional. The expense itself stays partly deductible for income tax.
How much VAT can I reclaim on my car?
At most 50 % for a passenger car, using one of the three accepted calculation methods. The same cap applies to fuel and servicing.
I forgot a purchase invoice from last quarter, is it lost?
No. The right to deduct can still be exercised later, up to the end of the third calendar year following the one in which it arose. Pass the invoice to your accountant so it goes into a later return.
Is a till receipt enough to deduct VAT?
No, you need a compliant invoice in your company's name. Ask for the invoice at every purchase, especially with suppliers you use often.
Read next
This article is for information only. Rules and thresholds change every year, so confirm your situation with your accountant or the FPS Finance before acting on it.
