New VAT Deduction Regulations for Financial Institutions Effective 2025

• The German Federal Ministry of Finance has issued new regulations on input tax deduction for credit institutions
• Banks are now required to create a procedural documentation for determining the allocation of input tax, explain the chosen methodology, and maintain clear and understandable records of the input tax deduction
• The Ministry’s directive from December 9, 2024, redefines its legal stance on how input tax deductions should be accurately calculated for credit institutions
• The Ministry acts as a quasi-legislator, emphasizing the need for precise, simple, and third-party comprehensible recording of input tax deductions as per sections 22 UStG and 63 UStDV
• It suggests that dividing operations into segments is the appropriate method for calculating input tax deductions in the banking sector, excluding non-typical banking operations like leasing
• Institutions have until December 31, 2025, to comply with these new regulations, but can rely on the old rules from the April 12, 2005 directive until then
• The new regulations significantly clarify the requirements for input tax deduction and allocation at credit institutions
• Banks must prepare early to comply with these detailed documentation and recording requirements as outlined in sections 22 UStG and 63 UStDV
• The principle of direct allocation requires that input services be directly assigned to corresponding output transactions, necessitating clear and traceable documentation
• If direct allocation is not feasible, an economic allocation based on cost accounting principles is used, which must realistically and objectively reflect the actual economic use

Source: bakertilly.de

Note that this post was (partially) written with the help of AI. It is always useful to review the original source material, and where needed to obtain (local) advice from a specialist.

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