What is VAT deduction and refund? Let's explain in simple words

Paying value added tax is the responsibility of organizations and entrepreneurs on the general taxation system. Those who work for OSNO can not only pay, but also compensate for VAT costs (issue a refund).

What about the other systems? Each mode has its own rules. The simplified taxation system is a preferential tax program, therefore it does not provide for the payment of VAT. But it is not prohibited either.

There are certain operations that simply cannot be carried out without VAT, so simplifiers can issue invoices taking into account value added tax.

To reimburse or compensate for costs in the case of VAT is to accept the tax as a deduction. We will tell you in detail in the article whether such an operation is allowed for the simplified tax system.

If you are an entrepreneur using a simplified taxation system, and your counterparty insists on generating settlement documents with allocated VAT, agreeing or refusing is entirely your right. Don't know what to do? Consult a tax professional.

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Essence of the question

Almost any citizen, entrepreneur or organization, purchasing goods, work or services, becomes a payer of a special type of fiscal burden - value added tax.
This payment is a kind of markup on the actual cost of the purchased product or service. Of course, a number of goods are exempt from taxation, but their number is insignificant. Despite the fact that in reality we are all payers of value added tax, its taxpayers, according to the norms of the Tax Code of the Russian Federation, recognize only legal entities and individual entrepreneurs using the general taxation system (OSNO), legal entities and individual entrepreneurs under special regimes (USN, UTII, Unified Agricultural Tax, PNS) when performing certain types of transactions.

What does taxpayer status give? This condition gives the economic entity not only the obligations to calculate and transfer funds to the budget, but also gives the right to a VAT refund. Sometimes taxpayer status is not required for this.

Who fills out the VAT return on the simplified tax system?

The simplified tax system assumes that there is no need to ask questions about paying VAT. However, this may be relevant in the following cases:

• When purchasing goods from a foreign supplier, if this supplier is not registered for tax purposes in Russia (if it is, then paying VAT is his responsibility) and, of course, if the goods are subject to VAT at all. Or if a buyer from Russia pays for work or services performed by a foreign organization.
• When renting and purchasing property owned by the state or municipality.
• In relationships within the framework of joint activity agreements (simple partnership, trust management). The nuances of VAT accounting for such cases are regulated in Art. 174.1 Tax Code of the Russian Federation.
• When issuing an invoice to a customer or buyer that includes VAT. Such situations may arise unforcedly. For example, an individual entrepreneur supplies goods to organizations that ask to issue invoices with allocated VAT. It is better not to comply with this request, citing regulatory documents that confirm your right to not issue invoices. However, there is no legal prohibition on issuing a “simplified” VAT invoice.

Each of these cases will require not only payment of tax, but also preparation of a tax return. The declaration will need to be submitted to the Federal Tax Service no later than the 25th day of the month following the end of the reporting quarter (paragraph 2, paragraph 5, article 174 of the Tax Code of the Russian Federation), and the method of submission may be non-electronic.

If you have access to ConsultantPlus, check whether you have correctly identified the situations when you need to pay VAT under the simplified tax system and report the tax. If you don't have access, get a free trial of online legal access.

For information on the rules for filing a declaration, read the article “What is the procedure for filling out a VAT declaration (example, instructions, rules).”

Who can return VAT

Typically, tax payers - individual entrepreneurs and legal entities - receive a tax deduction. Ordinary citizens, contrary to assurances in some media and on Internet sites, do not have such a right. The Tax Code of the Russian Federation does not provide for VAT refunds for individuals on a card or in any other way, if such people are citizens of Russia. And there are no exceptions to this rule. It is impossible to return VAT to an individual’s card for money or free of charge; the Federal Tax Service of Russia simply does not provide such a service. Therefore, all the instructions on the Internet on how to return VAT to your card legally and safely are traps for gullible citizens whom scammers want to deceive. You should not transfer money to them. You will definitely not receive any real refunds in return for payments made to the budget. But there is still one way to return VAT to an individual.

VAT refund procedure for individuals on purchases

The algorithm is quite simple. You should start by applying for a VAT refund upon purchase. Earlier we already understood that it is possible to return VAT to an individual, now it is important to understand how this happens. For clarity, let's imagine this process in the form of a diagram:

• First of all, there is the preparation and collection of all necessary documents for their transfer to the inspection body.
• The work then falls to a representative of a government agency. His responsibilities include checking those same documents and verifying them.
• After all the papers have been reviewed, the inspection makes a positive or negative decision, depending on the circumstances.
• If a decision was made in favor of a deduction, then the value added tax is returned by transfer.

When submitting an application, it is taken into account that it is written manually in the payer’s handwriting. In addition, the declaration must indicate a negative tax amount.

In addition to the standard set of documents, an institution may request additional certificates in the form of various acts. Therefore, taxpayers are advised to prepare a package of documents in advance and fill them out carefully to avoid mistakes. If the entrepreneur followed this advice, then after 7 days the application will be approved. Then, within 24 hours, the amount is returned to the organization’s current account or used to pay off debts and penalties, if any.

How can an individual get VAT back?

Unfortunately, VAT refunds for individuals in 2022 are not provided for in the Tax Code of the Russian Federation. Russians do not have the right to return the tax paid on goods, works, services purchased on the territory of the Russian Federation. The Tax Free System of the Russian Federation is provided for (Article 169.1 of the Tax Code of the Russian Federation). This is VAT compensation to a foreign individual for goods and services purchased on the territory of the Russian Federation. But not all purchases can be tax refunded. The right to compensation arises only when purchasing goods and services specified in the list of the Tax Code of the Russian Federation. The amount of tax to be refunded is determined individually.

Therefore, before applying for a refund, check whether the purchased product is included in the list of goods on Tax free.

A special check is required to process the refund. When leaving Russia at the customs inspection point, submit your purchase and fiscal receipt for inspection. The customs officer will check compliance and place a stamp on the receipt confirming the goods have left the country. After this, the foreigner receives the money.

Similarly, it is allowed to refund VAT to Russian citizens who made purchases outside of Russia. They will receive the money immediately before departure, at the airport on a bank card or in cash. The basis is a receipt with a return stamp from the country where the purchases were made.

You can return the VAT tax to the card after the trip by sending the documentation by mail to the intermediary address indicated on the receipt. The third method of compensation: contact a bank that is a partner of the intermediary company.

Conditions for refunding VAT from the budget to an individual

When selling a product, its price includes VAT in the amount of 10% or 20%, depending on the product category. The amount of this interest is paid to the budget. In this case, the payer has the right to a refund, and for what exactly we will discuss in this paragraph.

Based on the information given at the beginning of this part, we can draw the following conclusion. A VAT refund from the budget can only be made by an entrepreneur whose amount of payments for the reporting quarter exceeded the amount of deductions. This is most often used in practice when exporting goods.

According to the law, in Russia law firms reimburse interest. When exporting products abroad, the percentage is 0%. It also applies to the deduction. On the one hand, the tax is zero, and there is nothing to receive there, as well as to pay into state capital. On the other hand, in order to sell its own materials, the company purchased other goods and materials that are subject to tax. Therefore, the company has every right to a tax deduction. The negative difference between the debt to capital and the payment of the deduction itself is accepted for compensation.

Despite this possibility of compensation, the main thing remains that only entrepreneurs can use this privilege. An ordinary buyer may repeatedly wonder: “Is it possible to refund VAT?” Unfortunately, the answer to this question is no, for example, for shopping at the grocery store. The proof is this information in the Tax Code of the Russian Federation. As with any rule, here the legislation has introduced an exception. You can get a VAT refund when importing any material into our country. Thus, the well-known Tax Free system operates. It allows you to get a tax refund on shopping abroad. The list of products covered by the program is determined in each country according to its own criteria.

To exercise the right of reimbursement, several conditions must be met.

1. Any organization that is a taxpayer must use OSNO, that is, the main taxation system. If an entrepreneur uses a “simplified tax system”, for example, the simplified tax system, UTII, then the rate is not refundable. The amount of the obligations must be less than the amount of the tax deduction.
2. The basis for the calculation is not only the price of the product, but also other operations that accompany this product. The full list is in the Tax Code of the Russian Federation.
3. Most transactions are confirmed by signing documents. Reimbursement must also be documented. Documentation will be discussed separately in one of the paragraphs of this article.

Therefore, in order to receive a refund, these three key conditions must be met. In addition, it is worth filling out the data correctly. The Federal Tax Service checks information in a strict manner, as this helps protect counterparties from fraudulent activities.

Tax deduction for legal entities and individual entrepreneurs

When selling, the tax payer includes obligations in the cost of the goods, work, or service being sold. The rate is 10% or 20% (10/110 or 20/120, respectively) of the sales price. All taxpayers have the right to a tax deduction. It is equal to the amount of tax paid as part of the cost of goods, works, and services purchased for business activities. For example, for the purchase of materials for production.

IMPORTANT!

Individual entrepreneurs and organizations that apply special regimes, but are payers of value added tax, do not have the right to reimburse it from the budget.

Consequently, taxpayers for whom in the reporting period the amount of tax payable to the budget exceeded the amount of tax deductions have the right to a tax deduction. This most often happens during export.

An export deduction for legal entities is also possible when applying a zero tax rate. In this case, the amount payable to the budget is zero. But the company acquired materials, services, and work for the production of export goods. This means you have the right to a tax deduction. As a result, a negative difference arises between the payment to the budget and the deduction amount. This difference accounts for the return.

These conditions are provided exclusively for organizations and individual entrepreneurs.

Right to VAT refund

Only individual entrepreneurs and LLCs that use OSNO are entitled to a tax refund. To receive a refund, you must have VAT payer status and obtain the right to deduction. Refunds are received by:

• If the volume of sales of work and services of taxpayers turned out to be lower than the volume of purchases in this tax period;
• Legal entities exporting products abroad. They apply a zero rate when selling and receive the right to deduct tax paid when purchasing goods and services for sale abroad. To receive a deduction, the exporter must confirm the right to a 0% rate when selling products and justify the amount of the deduction;
• When using different tax rates when purchasing goods, paying for work and services, as well as their sale. Taxpayers can sell products with a VAT rate of 10%, but purchase materials or goods (services, works) taxed at a rate of 20.

Conditions and procedure for compensation

We outlined above in what cases VAT is refunded from the budget. Now let's figure out how to get reimbursement from the budget.

Key conditions for reimbursement:

1. An organization or individual entrepreneur uses OSNO. Let us repeat, subjects under other taxation regimes, even if they pay VAT to the budget, do not have the right to claim reimbursement of value added tax from the budget.

2. The amount of liabilities is less than the tax deduction. Please note that VAT payable is calculated not only on the cost of products sold, but also on a number of other transactions. The full list is enshrined in the Tax Code of the Russian Federation.

3. The right to compensation is documented. The taxpayer submitted all necessary documents to the Federal Tax Service:

• tax return;
• supply agreement;
• book of purchases and sales;
• invoices;
• stamped customs declarations;
• other documents.

4. An application for a VAT refund has been completed for an LLC, individual entrepreneur, non-profit organization or a taxpayer of another status.

IMPORTANT!

The return application form has been changed! Now you should fill out the form approved by order of the Federal Tax Service of Russia dated February 14, 2017 No. ММВ-7-8 / [email protected] (as amended on November 30, 2018).

Do I need to write an application for VAT refund?

VAT refund is the right of the taxpayer, which must be confirmed by him. Therefore, the tax authority cannot independently issue a VAT refund from the budget.

VAT refunds from the budget occur on the basis of an application for VAT refund.

The application can be submitted to the Federal Tax Service in writing or in a simpler electronic form.

Application form

to fill out: KND-1150057-2019-1

Ask for a tax free check at the store

You can get a tax refund only when purchasing in a store where there is a sign on the display window (checkout) that says “TAX FREE.” Not to be confused with “DUTY FREE” (see Figure 1 below).

Rice. 1. The most common TAX FREE store signs.

The basis for a VAT refund is a special check issued by the store. This is not a standard cash receipt, but a separate document indicating the amount of tax subsequently due to you (see Figure 2 below). Make sure that the receipt contains the inscription “TAX FREE”. As well as a list of purchased goods, your data: first name, last name, address, e-mail, passport number and bank card details if you choose a non-cash return. With this choice, documents will need to be sent by mail, so we advise you to ask the store for special envelopes. They already have all the necessary stamps and the address of the VAT refund operator company is indicated.

Sometimes sellers ask you to enter or, based on your words, enter all the necessary information right away in the store. Therefore, you need to have your passport or a photocopy of it with you. Sometimes sellers will give you a blank form and you can fill it out yourself later, for example at your hotel before leaving. See an example of a completed check below.

Rice. 2. One of the frequently issued TAX FREE checks.

Some countries have restrictions on the validity period of a TAX FREE check. That is, it will be possible to return the tax only within a certain period, for example, no later than a month from the date the check was issued. This point is also worth clarifying in advance.