Input VAT Deduction from Advance Payment Invoices

Advance payments are common in business practice, especially in larger procurement projects, technical investments or long-term commercial arrangements. In these situations, companies often need to determine whether input VAT may already be deducted before the underlying supply or service has actually been performed.

The German Federal Fiscal Court has now confirmed that input VAT deduction may generally be possible on the basis of an advance payment invoice, even if the actual supply or service has not yet been carried out at the time of payment.

 

Background of the case

The case concerned a taxpayer who participated in a photovoltaic investment model. The photovoltaic system was to be acquired first and subsequently leased to a third party.

At the time of payment, the system had not yet been delivered. Nevertheless, the taxpayer claimed input VAT deduction from the advance payments made.

The tax authorities denied the input VAT deduction, arguing that the underlying supply had not yet been performed and that the taxpayer had not yet obtained the power of disposal over the photovoltaic system.

 

Key clarification by the Federal Fiscal Court

The Federal Fiscal Court confirmed that input VAT deduction from an advance payment invoice may generally be available before the actual supply or service is performed.

The decision is especially relevant from a practical perspective: An invoice does not necessarily have to include explicit wording such as “advance payment”, “prepayment” or “instalment invoice”.

What matters is not the specific wording used, but whether the invoice clearly shows that it relates to a supply or service to be performed in the future.

 

Invoice requirements

An advance payment invoice must generally contain the same mandatory information as a regular invoice.

However, it is not necessary to state the expected date of performance.

Only the date on which the payment was received must be stated, provided that this date is known and differs from the invoice date.

 

What if the supply or service is not performed later?

The decision is also important for cases in which the intended supply or service is ultimately not carried out.

According to the case law, the input VAT deduction generally remains available if, at the time of payment, the recipient could legitimately and in good faith expect that the supply or service would be performed in the future.

The decisive point is therefore the situation at the time of the advance payment.

 

Practical implications for companies

Companies should continue to review advance payment invoices carefully. In particular, they should ensure that:

• all mandatory invoice details are included,
• the invoice clearly relates to a future supply or service,
• the payment is properly documented,
• the underlying contractual and commercial relationship can be substantiated.

 

FRADECO perspective

The decision strengthens legal certainty for input VAT deduction from advance payment invoices. It confirms that purely formal wording is not decisive.

For businesses, this means that the absence of terms such as “advance payment” or “prepayment” does not automatically lead to the loss of input VAT deduction, provided that the nature of the invoice is clear from its content.

At the same time, robust invoice review, proper documentation and traceable contractual evidence remain essential – particularly in larger investment projects and complex commercial structures.