As a company owner or manager it’s worth knowing that telephone services will imply significant extra costs if you don’t pay attention.
The law by default assumes there was private usage, and this does prohibit deducting the VAT of the expense.
For this reason the VAT act applies the 70% rule on deductibility: meaning that 30% of the input VAT of the phone expense is non-deductible. An additional headache is that the Personal Income Tax act assumes private usage of the company phone.
If the company phone was used for private purposes, then the business and private usage needs to be separated item-by-item, and the VAT amount of the private usage is non-deductible at all (neither partially nor proportionally).
If the itemized separation is impossible, then 20% of the full phone cost is deemed to be private usage.
Private usage – whichever version the company chooses – is a fringe benefit and taxable accordingly: the tax base is 1.19 times the amount calculated as above. The personal income tax is 16 percent, and additional 27 percent helath care contribution arises. Alltogether quite unfavourable 51.17% tax burden comes up, and this shall be paid by the company.
There’s one release from non-deducting the VAT: if the company forwards at least 30% of the incoming cost then the full amount of the VAT is deductible.
Hint: if you forward 30% of the incoming phone bill’s amount to the employees, then the VAT becomes fully deductible, and either fringe benefit or its taxes won’t even arise.