VAT recovery is a procedure carried out by the tax service in certain cases. For example, if previously imposed VAT was deductible on property or other assets, then when it is transferred to public organizations in the form of partnerships or cooperatives as a partial contribution or share contribution, the tax is subject to recovery.
When calculating the total amount of the obligatory payment, the residual value of the asset should not be taken as the basis. However, revaluation is not necessary. In addition, when transferring property in the form of a contribution to the authorized capital, you may require a corresponding deduction from the host company. VAT recovery should be documented. As a rule, such a document is an agreement on the transfer of property or an intangible asset into the ownership of another business entity with a note on the accrued tax amount.
According to the current legislation, a legal entity is obliged, upon receipt of an invoice for deduction of value added tax, to register this fact in the sales book. Moreover, registration is made at the residual value of the fixed asset. Most interestingly, the Ministry of Finance does not consider it necessary to simultaneously display these changes in the purchase book. They allow registration in this book already upon the presentation of the right to deduction. VAT recovery is necessary if the finished product, the services provided, as well as other property are used in operations for which the calculation of this tax does not seem to be a necessary action. When a legal entity is reorganized while transferring ownership of the elected successors, only the amount of the tax deduction is restored.
So, the question remains open of where the VAT amounts go and how the employee of the accounting department distributes them in the reporting documents. Often, the amount of tax is included in other expenses, which means that when accruing and paying income tax, the remaining part of income will be significantly reduced. Thus, VAT recovery increases costs. Moreover, the relevant entries must be made in a timely manner, that is, in that reporting period in which the transfer of property or other fixed assets took place.
In a special way, VAT is restored upon the transition to the simplified tax system. In this case, the above procedure should be carried out before the direct transition to a simplified system, that is, in the last financial year. It is worth noting another nuance. If the “simplified” assumes the introduction of unified agricultural tax, then the recovery procedure is not necessary. Therefore, before unconditionally transferring accrued tax amounts to the budget, the current law should be carefully studied. Recall that the payment is obligatory for implementation only when it is clearly spelled out in the legislation. Otherwise, no employee of the tax authority has the right to demand the immediate payment of value added tax from the business entity. Ultimately, any legal proceeding on this subject will end in favor of the legal entity.
Many enterprises and organizations benefit from preferential taxation and also face the need to carry out a procedure such as VAT recovery. Postings in this situation will vary significantly. Particularly tight are those companies that use both the preferential and the regular systems in their accounting, since they have to keep separate records. And this often leads to additional questions and nit-picking by the tax authorities. Indeed, a clear algorithm for maintaining separate accounting of financial resources has not yet been approved by law. It is enough for a legal entity to develop its own system and mark it in the constituent documents.