Companies may deduct input VAT after ceasing activity if four years have not passed

The cessation of an economic activity does not imply the immediate loss of deduction rights regarding previously incurred VAT amounts. The Dirección General de Tributos (DGT) has clarified the scope of this right in relation to the moment a taxpayer deregisters from the census.

What the DGT has resolved

The administration has determined that the status of a taxable person is maintained until the effective cessation of activity and the corresponding deregistration from the census occurs, which includes the liquidation of assets. The key point of the ruling is that the right to deduction does not constitute a tax option, but rather a right of the taxpayer.

This means that input VAT amounts can be deducted in the period in which the accrual occurred or in subsequent periods, provided that the statute of limitations is respected. According to current regulations, the calculation of the four years to exercise this right is made from its inception—that is, from the accrual of the tax liability—unless there is an administrative controversy that has interrupted said period.

What this means for you

If your entity has ceased its economic activity but still has input VAT amounts that have not been applied, you do not automatically lose the possibility of recovering them. The relevance of this criterion lies in the distinction between the cessation of operational activity and the termination of the status of a taxable person following total liquidation.

• The right to deduction remains valid during the four-year period from the accrual.
• Deregistration from the census does not prevent the deduction of amounts from previous unused periods.
• The statute of limitations is counted from the birth of the right, except for interruptions caused by actions of the Administration.

What should be done

In a situation of cessation of activity or liquidation of assets, it is necessary to verify the status of the input VAT amounts that have not yet been deducted. The exact date of the accrual of said amounts must be checked to ensure that the exercise of the deduction is carried out within the four-year margin provided for in the General Tax Law and the VAT Law. Each liquidation situation requires an analysis of the effective deregistration date to determine the validity of the deduction rights.