- The adjustment of the deducted VAT is made when the conditions under which the initial deduction was made change.
- Capital goods have a longer adjustment period than other goods.
- The adjustment is made within the time limit set by law and is reflected on the statement.
- There are cases where regulation is not required, and the law explicitly specifies them.
Adjustment is not a corrected error. It is a mechanism provided by law for cases when the use of the good changes after purchase, for example when an asset moves from taxable activity to exempt activity.
For capital assets this is of particular importance, because the adjustment period spans several years. This means that a sale or change of use after three years may still require an adjustment. The treatment of assets for income tax purposes is on our page. deductible expenses.
General principles governing the adjustment of input VAT
Based on Article 82 of the law No. 92/2014 “On Value Added Tax in the Republic of Albania”, If the VAT deduction has been made incorrectly and/or does not relate to goods excluded from the right to deduct, then certain rules must be applied to carry out adjustments to the deducted VAT. If the VAT deduction has been made correctly and/or does not relate to goods excluded from the right to deduct, then the deduction made under the conditions provided for by law does not constitute an adjustment of the input VAT.
The previously claimed VAT deduction is adjusted when it is higher or lower than the amount for which the taxable person was entitled to a deduction.
Thus, the law provides that an adjustment must be made when the partial deduction coefficient for a good or service needs to be modified due to a change or expansion in the use of the good, or when events occur that compel a change in the use of the good or service.
The adjustment period
Adjustments may be made within a ten-year period for immovable capital goods, five-year period for movable capital assets, beginning on the date the assets are purchased or produced, provided that their purchase price or production cost exceeds 500,000 (five hundred thousand) lek without including VAT.
The adjustments made may result either in the reversal of part of the input VAT or in an additional deduction. In both cases, they are recorded in the purchase register and in the relevant section of the VAT return, according to the effect (+) or (-) on VAT input deductions.
Warning!
No adjustment can be made for goods with a taxable coefficient of zero, i.e., goods that from the outset have not been used by a taxable person acting as such to carry out transactions within the scope of VAT.
Depreciation adjustments for capital goods
The initial VAT deduction is adjusted when the use of capital goods changes in a way that affects the taxable person's right to deduct the VAT amount, which may be lower or higher.
The annual adjustment is made only for the one-tenth portion (e.g., 1/10) of the VAT on real estate and for the one-fifth portion (e.g., 1/5) of the VAT on other capital goods, applied to the VAT on capital goods.
The adjustment must be made based on changes in the depreciation allowance for subsequent years that relate to the year in which the capital assets were acquired (purchased or produced). The incomplete calendar year shall be treated as a full year. Depreciation adjustment entries must be recorded in the purchase ledger and in the appropriate box of the VAT return.
Case of non-regulation
The taxable person is not required to adjust the deduction if the difference in the deductible VAT to be adjusted is less than 20,000 (twenty thousand) lek.
Source: General Directorate of Taxes.
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