4 September 2026 • 2 minute read
VAT clarification on input tax recovery and non-taxable transactions
The Announcement confirms that input VAT may remain deductible where the taxpayer receives insurance compensation, donations, damages arising from a contract that was not performed and gave rise to no taxable transaction, provides services free of charge (excluding free transfers of financial products), transfers qualifying trade receivables, or receives qualifying fiscal subsidies not directly linked to sales revenue or volume. Conversely, input VAT is non-deductible for transactions outside the statutory scope of domestic taxable transactions, transfers of equity interests, specified dividend income and commodity trading other than physical delivery. The Announcement also addresses agricultural invoices, qualifying vocational schools, first-entry ticket income, the cost basis of financial products following an asset restructuring, acquisitions of real estate and land-use rights, waiver of VAT incentives, bundled telecommunications supplies, and invoice requirements for discounts. The Announcement takes effect on 1 September 2026. It also applies to unresolved matters arising from 1 January to 31 August 2026.
Key takeaway / recommendation
Businesses should reassess input VAT recovery positions in light of the new Announcement, particularly regarding subsidies, damages, insurance compensation, receivables transfers, dividends, equity investments and offshore transactions. Given its retrospective application to unresolved matters arising from 1 January 2026, taxpayers should also revisit historic VAT positions, ongoing disputes, invoicing arrangements and supporting documentation to determine whether any adjustments are required.
