Input VAT Deduction in Germany 2026: How Vorsteuerabzug Works for Businesses

Input VAT deduction (Vorsteuerabzug) is one of the most important mechanisms in the German VAT system — and one of the most common sources of errors for freelancers and GmbH founders. Understanding it correctly means you can reclaim a significant portion of the VAT you pay on business expenses.

What Is Input VAT (Vorsteuer)?

When you pay a supplier invoice as a VAT-registered business, the invoice includes VAT that goes to your supplier. This VAT you pay to other businesses is called Vorsteuer (input VAT). You can offset it against the VAT you collect from your own clients. Only the net difference needs to be remitted to the tax office — or if your input VAT exceeds your output VAT, the difference is refunded.

Who Can Deduct Input VAT?

• VAT-registered businesses under §2 UStG — including GmbHs, UGs, freelancers, and self-employed persons
• Businesses with a mix of taxable and exempt sales can deduct input VAT proportionally
• Not eligible: small businesses under §19 UStG (since they don't charge VAT themselves)
• Not eligible: private individuals

Requirements for Input VAT Deduction

Four conditions must all be met at the same time:

• You are a VAT-registered entrepreneur
• You have received a proper invoice with all mandatory fields under §14 UStG
• The supply was for your business (business purpose)
• You use the supply for VAT-taxable outgoing transactions

If any condition is missing, the deduction is fully or partially disallowed. Crucially: the invoice must contain all required fields. An incomplete invoice does not entitle you to a deduction — even if the service was genuinely provided.

How to Claim Input VAT

In your monthly or quarterly VAT return (Umsatzsteuer-Voranmeldung, UStVA), you report two figures: the output VAT you collected and the input VAT you paid to suppliers. The tax office offsets these. If your input VAT exceeds your output VAT — for example after a large capital purchase — you receive a refund. The return is filed electronically via ELSTER.

Limitations on Input VAT Deduction

• Entertainment and representation expenses (e.g. gifts over €50 per recipient per year): no input VAT deduction
• Business meals: only 70% of the included VAT is deductible (§15 para. 1a UStG)
• Mixed-use assets (business and private): only the business-use portion qualifies for deduction
• VAT-exempt outgoing transactions (e.g. doctors, insurance brokers): no input VAT deduction for related inputs

Input VAT in Your Bookkeeping

In double-entry bookkeeping, input VAT is posted to account 1400 (SKR03) or 1576 (SKR04) and appears as a receivable from the tax office on the balance sheet. Every supplier invoice must be correctly posted with the VAT amount separated. Norman captures incoming invoices automatically, identifies the input VAT, and posts it to the correct SKR03/04 account.

Input VAT Adjustment (§15a UStG)

If you claim full input VAT on an asset and later change how you use it (e.g. a laptop becomes partly private use), you must adjust the deduction over a correction period of 5 years for movable assets or 10 years for real estate. This is called Vorsteuerberichtigung and is governed by §15a UStG.

Conclusion

Input VAT deduction is a real tax advantage — but it requires your incoming invoices to be complete and correctly recorded in your bookkeeping. Incomplete invoices or incorrect postings can lead to back payments in an audit. Norman captures supplier invoices automatically, calculates the deductible VAT, and posts it to the right account — so your next VAT return is just one click away.