If you run a business, every month you make purchases for your business — goods for sale, accounting services, supplies, services. Their price often includes VAT. Under certain conditions, the VAT you pay can be deducted or refunded by the state in the form of tax credit.
In this manual, an accounting firm Rodi Consult (Varna) explains simply and with examples how the mechanism works, who is entitled and what the restrictions are - updated for 2026.
In short: The tax credit is the amount of VAT that a VAT registered person deducts from the sales tax due for purchases related to their taxable activity. To use it, you must be registered under the VAT, have an invoice with tax charged and the purchase must be for taxable supplies.
What is a tax credit?
The tax credit is the amount of VAT that a VAT registered person is entitled to deduct from his own VAT liabilities for the goods and services acquired. In practice, the VAT paid on purchases is deducted from the VAT due on sales.
Example: A company buys clothes for 1,200 euros including VAT (1,000 euros value + 200 euros VAT). During the month it sells them for 1,560 euros including VAT (1,300 euros revenue + 260 euros VAT). The VAT due is 260 euros, but the company deducts 200 euros paid on the purchase. The end result: only 200 euros are due 60 euros. These 200 euros are the tax credit.
Under what conditions are you entitled to a tax credit?
- VAT registration — under Art. 96 (turnover, which from 2026 is 51,130 euros) or Art. 100 (optional).
- Tax charged by the supplier — if you buy from an unregistered person without VAT, there is nothing to deduct.
- Purpose for taxable activity — you only have credit for purchases for taxable supplies.
- Documentary justification — you must have an invoice.
Persons registered only under Art. 97a or Art. 99 are not entitled to a tax credit. The right is exercised in 12-month term. See also our article about renting through Airbnb and Booking through a company.
When you are NOT entitled to a tax credit
Cars and motorcycles
In general, there is no right to a tax credit when purchasing a passenger car or motorcycle, as well as for their fuel, oils, repairs and maintenance. There is an exception for taxi services, rental, courier, transport and security services, driver training and subsequent resale.
Other restrictions
- Free deliveries or purchases outside the business activity.
- Representation and entertainment expenses — guests, accommodations, food and drinks, celebrations.
- Exempt supplies — education, healthcare, financial and insurance services.
How is VAT refunded?
When the VAT paid on purchases for the month exceeds that charged on sales, the result is VAT refund. The amount is deducted over the next two tax periods, and the remainder can be effectively claimed from the NRA. The full rules are in the law and the instructions of the NRA.
FAQ
Who is eligible for a tax credit?
Only persons registered under the VAT Act are entitled to a tax credit - on the basis of Art. 96 (turnover achieved) or Art. 100 (optional). Persons registered only under Art. 97a or Art. 99 are not entitled to a tax credit for the goods and services received.
Is there a tax credit when purchasing a passenger car?
In general, no. For a passenger car (up to 5 seats without the driver) and a motorcycle, as well as for their fuel, repair and maintenance, there is no right to a tax credit. There is an exception for taxi services, rental, courier and security services, driver training and subsequent resale.
Within what period can the tax credit be used?
The right to a tax credit is exercised within 12 months from the month in which the purchase was made. If you do not deduct the tax within this period, the right is lost.
What is the difference between a tax credit and a VAT refund?
A tax credit is a deduction of the VAT paid on purchases from the amount due on sales. A VAT refund occurs when the tax on purchases exceeds that on sales — then the amount is deducted over the next two periods, and the balance is effectively claimed by the NRA.
Is an invoice needed for a tax credit?
Yes. Documentary justification is a mandatory condition - you must have an invoice or other document for the purchase with VAT charged. The lack of a document is grounds for the tax authorities to deny the right to a tax credit.
The conclusion
The tax credit is a serious tool for optimizing VAT obligations, but it requires correct registration, proper documents, and attention to restrictions.
Want to make sure you're making the most of your tax credit? Explore Rodi Consult accounting services or us write for a free consultation. Phone: +359 893 474 576.
This article is for informational purposes only and does not constitute tax advice. Please consult an accountant for your specific situation.
