Deduction of VAT on fixed assets: fundamental principles and management of VAT regularization

Value Added Tax (VAT) on fixed assets represents a fundamental pillar of tax compliance within companies. Mastering the rules governing the deduction of VAT is essential, not only to meet regulatory requirements, but also to limit the risks of business recovery.

VAT Deduction and Regularization Periods

The deductible VAT on the acquisition of fixed assets is not definitively acquired immediately. For movable assets, this deduction is subject to a period of five years, and for fixed real estate assets, the period extends to twenty years.

This system is designed to moderate the financial effects of major investments and ensure fiscal amortization over time.

Annual adjustments

When a company acquires a fixed asset, it undertakes to keep it for a certain period of time, without major changes that would affect its rights to deduct VAT. Adjustments must be made annually if the deduction rights vary by more than 10% per year. These adjustments are calculated annually on the basis of one fifth or one twentieth of the VAT initially deducted, depending on the type of fixed asset concerned.

Monitoring of Deduction Factors and Potential Consequences

It is therefore essential to monitor the annual variations in deduction coefficients. A significant variation, even of only 10%, can have significant financial consequences. Careful management and regular monitoring are therefore necessary to prevent fiscal surprises.

Global adjustments

Global adjustments occur when definitive changes affect the use of fixed assets or their fiscal status, causing full adjustments to the deduction rights originally calculated. These changes may include the sale of the asset, a change in allocation between business sectors, or a change in terms of use that alter VAT exemptions or obligations in a sustainable manner.

Context of Global Regularizations

When a major event permanently changes the use of a fixed asset, the company must carry out a global adjustment for all the remaining years of the adjustment period (5 years for furniture or 20 years for buildings). This adjustment takes into account all the variation in deduction rights from the purchase of the fixed asset to the end of its adjustment period.

Practical Example: Consequences of an Assignment on the Deduction of VAT

Consider a company that, in 2019, acquires a new building and deducts €200,000 in VAT. If in 2024, she decides to sell this building to an individual without opting for VAT on the transfer, she will then have to pay 14/20 of the VAT initially deducted, i.e. 140,000€. This obligation could seriously affect its cash flow and the profitability of the operation.

Strategies to Minimize Tax Impacts

To avoid negative impacts, the company could opt for VAT during the transfer. This decision can either reduce the consequences for the seller or increase the cost for the purchaser. Good planning and a thorough understanding of deduction rules are therefore crucial.

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In conclusion, managing VAT on fixed assets requires detailed control of VAT regulations and continuous attention.