Prior to the enactment of law 1607 on 26 December 2012, although excess VAT accrued due to differing tax rates could be carried forward to future VAT returns; it was generally treated as an additional cost of the goods or an expense for income tax purposes. However, since this enactment, credit balances can now be applied by the taxpayer in the following ways:
- They may be carried forward and allocated against output VAT in the following VAT return.
- They can be offset against other taxes. This option may only be requested by suppliers of goods and services that are taxed at the VAT rate of 5 percent. The offset request must be made by filing the income tax return for the taxable period in which the balances accrued in the following month.
- A refund of the credit balance can be requested by suppliers of goods and services that are taxed at the VAT rate of 5 percent. They must file their income tax return for the taxable period in which such balances accrued, no later than 2 years after the due/filing date for the return.
- When VAT credit balances are accrued due to the application of different VAT rates and a taxpayer opts to offset or claim a refund of this VAT, the balances can be carried forward on a bimonthly, biannual or annual basis (depending on the origin of the credit balance).
Companies will now be required to establish new internal controls in an attempt to promptly recover and manage VAT credit balances. Such controls should ensure, in particular, that taxes are managed and returns are filed in a timely way to allow taxpayers to apply for the offsetting or refund options noted above.
KPMG would advise clients to review controls and the management of their taxes to ensure that they are in a position to reclaim/offset excess VAT credits.