The Federal Fiscal Court, the Bundesfinanzhof (BFH), has set out the requirements for deducting input VAT on advance payment invoices more precisely. The decision brings companies welcome clarity — particularly on larger investments where payments are made before the supply itself is performed.
Why this matters in practice
In investment projects, advance payments are no exception. With more complex procurement, technical plant or projects planned over the long term, the question regularly arises of when the input VAT on an invoice can be claimed.
The BFH has now made clear that input VAT can in principle be deducted from an advance payment invoice — even where the supply itself has not been performed at the time of payment.
The case decided
In the case decided, the claimant took part in an investment model in photovoltaics. The installation was first to be acquired and then leased to a third party.
The installation had not been delivered at the time of payment. The claimant nevertheless deducted the input VAT on the advance payments made.
The tax office refused the deduction, on the ground that the supply had not yet been performed and that the claimant had not yet obtained the power of disposal over the photovoltaic installation.
The BFH’s decision
The BFH confirmed that input VAT on an advance payment invoice can in principle be deducted before the supply is performed.
Particularly relevant in practice: an invoice does not have to be described expressly as an “advance payment”, “prepayment” or “interim invoice”. What matters is not the particular wording but the recognisable content of the invoice.
It has to be apparent from the invoice that it relates to a supply still to be performed.
What the invoice has to contain
The requirements for a proper invoice apply in principle to advance payment invoices as well. The invoice therefore has to contain the relevant mandatory details.
An expected date of supply does not have to be stated, however.
All that has to be stated is the date on which the consideration is received, where that is already fixed and differs from the invoice date.
Where the supply does not materialise
The input VAT deduction is in principle preserved where, at the time of payment, the recipient was entitled to assume in good faith that the supply would be performed.
What counts is therefore the position at the time of the advance payment — not developments afterwards alone.
What companies should keep in mind
Companies should continue to check and document advance payment invoices carefully. It is particularly important that:
- all the mandatory details of a proper invoice are present,
- the invoice can be related unambiguously to a supply still to be performed,
- the payment is documented in a way that can be followed,
- the underlying supply relationship can be evidenced soundly.
Where this leaves us
The decision strengthens legal certainty on the input VAT deduction from advance payment invoices. It makes clear that formal wording alone is not decisive.
In practice that means the absence of an express reference such as “advance payment” or “prepayment” does not automatically cost the input VAT deduction, where the character of the invoice follows from its content.
Companies should nevertheless see to clean invoice verification, complete documentation and contractual foundations that can be followed — particularly on larger investment projects and more complex supply relationships.