Reciprocal Tax Settlement

Carpenter Sindre has for a long time dreamed of starting his own business. Finally, the day has come. He quit the safe job at a large carpentry company, and started his own small carpentry business with individual companies as a corporate form.

He spends a large portion of his savings on buying the necessary tools he needs before he can take on a joinery assignment for clients. Proper tools are expensive. Not only does he spend a lot of the savings on his purchases, more sinister is that he has to wait until he passes 50,000, – in turnover before he becomes VAT-registered – which means he does not get the VAT amount on the investments he has made in the start.

For example, if Sindre purchased tools for NOK 100,000, including VAT (80k excl. VAT and 20k in VAT), in practice it means that he has to pay NOK 20,000, – more for these goods than VAT-registered traders who are refunded the VAT amount upon filing of the next sales assignment.

Fortunately for Sindre and other traders in the same situation: It is actually possible to get a refund for input VAT on purchases made before being registered for VAT by applying for a so-called “recurring tax settlement”.

In other words: With an approved application for a recurring tax settlement, for our friend Sindre it will mean much needed extra NOK 20 000, – in the money book in a tough start-up phase. Well worth applying for then…

Rules for reciprocal tax settlement

  1. The company must still own the goods or assets at the moment the unit is VAT registered. Example: If Sindre puts new flooring in a customer’s house before he was registered for VAT and invoices him for the use of the material (without VAT), he cannot claim a refund for the VAT expense he himself had from his supplier on the relevant materials.
  2. The purchases for which reimbursement is sought must be related to the registered business and used in connection with the turnover which has led to the company being registered for VAT. Also, there will be no refund on items purchased and used for hobby purposes until it was used for business operations. There are also certain requirements regarding the length and continuity of the purchase period.
  3. Refunds can only be granted for purchases made a maximum of 3 years back in time before the application is submitted to the tax authorities.

How do I apply?

It is the county tax offices that process recurring tax settlement applications.

To apply, check the box “Seeking Recurring Tax Settlement” on the Coordinated Register Notification Part 2 form.

In addition, an attachment must be attached with an overview of which procurement the application comprises as well as information on how these purchases are used in the business (on request it may be necessary to present invoices of the purchases / you may attach copies of the invoices as attachments with it). same).

Update: The requirement for a formal application will be abolished from January 2015. Instead, the paid VAT will be entered in the start-up phase (before registration).

What about pre-registration in the VAT register?

The main rule for VAT registration is that enterprises must first show a turnover of NOK 50,000 during a 12 month period in order to be registered. In addition to the recurring tax settlement, it is possible, under certain conditions, to apply for pre-registration and thus receive deduction for incoming VAT on purchases starting on day 1.

It is possible to apply for pre-registration at:

Significant procurements. Purchases before the company itself gets turnover must be “substantial”. By “substantial” is meant at least NOK 250,000, including VAT (goods or services that are exempt from VAT do not apply). The purchases must, of course, be related to subsequent taxable sales.

It must be “reasonably probable” that the enterprise will have a sales well above the limit to be registered for VAT (50,000 over a 12-month period) when the business has started operating normally.

PS! Pre-registration will not be granted due to. significant acquisitions if it is expected to reach the registration limit within 4 months.

PS! If you are granted pre-registration if, however, the conditions for pre-registration do not reach, the company can be deleted from the VAT register.

Pre-registration for practical reasons. Can be granted if the taxable turnover will exceed the registration limit within 3 weeks.