VAT deferment means you postpone the payment of VAT as far as capital goods are concerned. Capital goods are those goods which when purchased help the company produce consumer goods or are helpful to the company in providing services. A few examples of capital goods are buildings, machines, and furniture. It should be noted that the items that fall within the ambit of VAT deferment are only plant and machinery. What is excluded from being eligible for VAT deferment is spare parts and decorative items. Although there is no real definition of plant and machinery in the law but practice says that an item qualifies as plant and machinery when it can produce taxable goods and supplies which have a lifespan of more than an year. Every country has its own definition of plant and machinery
Purpose of VAT deferment
The purpose of VAT deferment is to offer relief to the importer when he is importing plant and machinery. Countries are adopting the VAT deferment schemes so that they attract importers because no tax is now paid to the customs at the time of import.
How to apply for VAT deferment
The VAT deferment is in the hands of the commissioner general of the respective revenue authority and it is with him that the importer of capital goods can file an application.
Conditions for VAT deferment
The first pre requisite of VAT deferment is that the applicant is registered for VAT with the relevant revenue authority. The next requirement is that the importer is using the plant and machinery for his business. The amount of VAT payable in respect of each unit of capital goods would be different in every country and goods imported whose value is less than the said amount will be treated as normal and will have to follow normal rules of calculation of taxes by Custom laws and procedures. Another basic requirement is that the VAT returns should be up to date and the applicant or his agent should not have violated any custom regulations in the past. Also, VAT returns of the previous month should be filed with the commissioner general on the 20th of each month. Next important thing is that the applicant should have been solvent in the three years preceding the application. In some cases the commissioner general may use his discretion before approving the application and ask the applicant to deposit the VAT amount due as security.
Duration of VAT deferment
There is a specified number of years for which tax deferment would remain in place after which the VAT on capital goods becomes payable again. VAT on capital goods will also become payable when the importer in question sells the plants and machinery.
Time taken for license to arrive
Time taken by the competent authority to furnish the Import VAT deferment license varies with every country but in general should take 60 days on an average.
To conclude I would like to say that VAT deferment is a crucial and helpful step for economies that are looking to create a favorable investment climate.