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German VAT deduction limits

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German VAT deduction limits

Unlike most EU countries, Germany only restricts VAT deduction on a few items. In general, input VAT incurred in the course of a business in hotel expenses, restaurants, attendance to conferences, telephone, taxi or entertainment is 100% deductible.

The following items are not VAT deductible:

  • Gifts to non-employees with a value over 35€ a year.
  • Luxury goods

Any other input VAT is fully deductible as long as it is incurred as part of a business activity. Where the business use of an item is below 10%, this item is generally not deductible.

Input VAT prior to start a business (eg before a VAT registration) may be deductible, however, this should be agreed with the competent tax office, particularly for material amounts.