How the VAT pro rata rule works
Posted: Wed Dec 18, 2024 3:57 am
In this article, we will explore the key points of the VAT apportionment rule, breaking down its general and special modalities, as well as the deadlines and accounting considerations that must be taken into account when applying this regulation.
The application of the VAT apportionment rule is essential to determine the deductibility of the amounts incurred in commercial operations.
Find out how this rule affects the daily accounting of companies and why it is crucial to have an efficient accounting solution to manage its implications, whether applying the general or special apportionment.
The prorata rule in VAT is a mechanism that affects the deductibility of the amounts incurred . It applies to those who simultaneously carry out operations that give rise to tokelau email list the right to deduction with others that do not grant it.
Download your FREE copy of the “Basic Kit for Keeping Your Accounting Up to Date”
The law limits the deductibility of the incurred taxes. It does so based on the destination given to the goods and services acquired. To do so, it takes as a reference the extent to which these are used in carrying out activities that grant the right to their deduction. The result is a percentage that we call prorata and that has two modalities: the general and the special.
In principle, there are two types of apportionment: general and special. Normally, the general apportionment can be applied , but there are two exceptions :
1. When you expressly opt for the special prorate .
2. When, applying the general apportionment rule, you would deduct an amount at least 10% higher than what you would deduct with the special apportionment.
General apportionment
The general apportionment is applied to all purchases of goods and services without taking into account their final destination. This simplifies the process of calculating deductible contributions.
To calculate it, you must find the result of a quotient in which:
The numerator will include the amounts of deductible deliveries of goods and services.
In the denominator, the total number of operations carried out will appear.
However, some figures do not enter into the calculation of said quotient, neither in the numerator nor in the denominator, such as the following:
Operations carried out from permanent establishments outside the territory of application of VAT.
VAT rates.
Deliveries and exports of capital goods.
Real estate or financial transactions that do not constitute your activity.
Non-taxable operations.
Certain self-consumption due to allocation or change in allocation of investment assets.
Once you have calculated the quotient, you must multiply by one hundred to find the percentage of the prorate. If the result is not a whole number, you will round up to the next higher whole number . For example, if the result is 11.01, you will apply a prorate of 12%.
However, until the end of the fiscal year, it will not be possible to calculate the prorated percentage. Thus, for the preparation of VAT settlements , the final prorated amount obtained in the previous fiscal year will be provisionally applied .
In addition, in the last settlement of the year, the deductible amounts are regularized . If the final VAT apportionment of the year differs from that of the previous year, you will have declared more or less than what you should have. Therefore, in that last form 303 of the year you will proceed to adjust this deviation.
Start of marked textSHARE! Do you know what part of the VAT your business pays is deductible? Find the answers in the prorata rule.End of marked text
Special apportionment
The special apportionment is based on the following rules :
You will deduct all VAT incurred on the acquisition of goods and services used exclusively for carrying out activities that entitle you to the deduction of quotas.
The deduction of VAT incurred on the acquisition or importation of goods and services used exclusively in carrying out operations that do not give rise to the right to deduct is not permitted.
The general prorated percentage is applied to those supported quotas used in the acquisition or importation of goods or services used only in part in carrying out operations that give rise to the right to the deduction.
The application of the VAT apportionment rule is essential to determine the deductibility of the amounts incurred in commercial operations.
Find out how this rule affects the daily accounting of companies and why it is crucial to have an efficient accounting solution to manage its implications, whether applying the general or special apportionment.
The prorata rule in VAT is a mechanism that affects the deductibility of the amounts incurred . It applies to those who simultaneously carry out operations that give rise to tokelau email list the right to deduction with others that do not grant it.
Download your FREE copy of the “Basic Kit for Keeping Your Accounting Up to Date”
The law limits the deductibility of the incurred taxes. It does so based on the destination given to the goods and services acquired. To do so, it takes as a reference the extent to which these are used in carrying out activities that grant the right to their deduction. The result is a percentage that we call prorata and that has two modalities: the general and the special.
In principle, there are two types of apportionment: general and special. Normally, the general apportionment can be applied , but there are two exceptions :
1. When you expressly opt for the special prorate .
2. When, applying the general apportionment rule, you would deduct an amount at least 10% higher than what you would deduct with the special apportionment.
General apportionment
The general apportionment is applied to all purchases of goods and services without taking into account their final destination. This simplifies the process of calculating deductible contributions.
To calculate it, you must find the result of a quotient in which:
The numerator will include the amounts of deductible deliveries of goods and services.
In the denominator, the total number of operations carried out will appear.
However, some figures do not enter into the calculation of said quotient, neither in the numerator nor in the denominator, such as the following:
Operations carried out from permanent establishments outside the territory of application of VAT.
VAT rates.
Deliveries and exports of capital goods.
Real estate or financial transactions that do not constitute your activity.
Non-taxable operations.
Certain self-consumption due to allocation or change in allocation of investment assets.
Once you have calculated the quotient, you must multiply by one hundred to find the percentage of the prorate. If the result is not a whole number, you will round up to the next higher whole number . For example, if the result is 11.01, you will apply a prorate of 12%.
However, until the end of the fiscal year, it will not be possible to calculate the prorated percentage. Thus, for the preparation of VAT settlements , the final prorated amount obtained in the previous fiscal year will be provisionally applied .
In addition, in the last settlement of the year, the deductible amounts are regularized . If the final VAT apportionment of the year differs from that of the previous year, you will have declared more or less than what you should have. Therefore, in that last form 303 of the year you will proceed to adjust this deviation.
Start of marked textSHARE! Do you know what part of the VAT your business pays is deductible? Find the answers in the prorata rule.End of marked text
Special apportionment
The special apportionment is based on the following rules :
You will deduct all VAT incurred on the acquisition of goods and services used exclusively for carrying out activities that entitle you to the deduction of quotas.
The deduction of VAT incurred on the acquisition or importation of goods and services used exclusively in carrying out operations that do not give rise to the right to deduct is not permitted.
The general prorated percentage is applied to those supported quotas used in the acquisition or importation of goods or services used only in part in carrying out operations that give rise to the right to the deduction.