Incorrect VAT rate on the invoice - consequences for the seller

Service-Tax

Obligation to specify the correct VAT rate on the invoice

Sales of goods and services are subject to taxation at the standard rate of 23%. For some goods and services, however, the legislator provided for lower tax rates - 8%, 5%, 0% and tax exemption. If a given good or service is not listed in the specific provisions of the VAT Act or regulation - as being subject to a reduced VAT rate or exemption from VAT - then the basic rate of 23% should be applied to their sale. Find out what are the consequences of using an incorrect VAT rate on the invoice!

Incorrect VAT rate - effects on the seller's side

Incorrect VAT rate applied by the supplier of goods or services may cause severe effects in VAT. However, it all depends on whether the rate has been overstated or understated. The overstatement of the VAT rate only results in the fact that the product is ultimately sold at a higher price, while the lowering of the rate may result in the tax liability being understated, tax arrears and late payment interest.

Therefore, if the taxpayer issues a VAT invoice with a rate higher than the rate applicable to the given goods or services, then regardless of the fact that the tax has been overstated, the taxpayer is obliged to pay the tax due to the budget in the amount indicated on the issued VAT invoice.

The problem may be a situation where the taxpayer taxed sales at the 0% rate, which according to the regulations is exempt from VAT. Such an activity does not seem to have any financial consequences on the part of the invoice issuer, because there is no due tax, and therefore the budget does not incur any financial losses.

However, it is worth remembering that sales exempt from VAT do not entitle the taxpayer to deduct input tax related to that sale. Therefore, if the taxpayer made purchases of goods and services related to sales exempt from VAT, which he wrongly taxed with the 0% rate, and deducted VAT on these purchases - this situation resulted in a tax arrears for a given accounting period. In this case, the taxpayer must correct the VAT returns for the period in which he incorrectly documented the activities performed and the tax returns should not be shown in the tax deductible.

Also when, apart from exempt activities, the taxpayer performed activities subject to VAT, he should pay attention to those purchases that were related to both types of activity and which could not be clearly attributed to either of these types. In such a case, he had only a partial right to deduct the input tax, pursuant to Art. 90 of the VAT Act. In this case, too, the corresponding deduction of the deductible input tax will be necessary.

Therefore, the mere fact of incorrect invoicing of an activity (as taxed at 0% instead of exempt from VAT) will not result in the issuer having any consequences in the form of a tax liability, but it is extremely important for the correctness of input tax settlements.

Incorrect VAT rate on the invoice - how can it be corrected?

In the event of an incorrectly applied VAT rate, the taxpayer (issuer) may correct the issued invoice. If the incorrect VAT rate has been overstated, there will be no financial consequences on the part of the invoice issuer, even if the invoice is not corrected. The tax authorities, on the other hand, will certainly question the VAT invoice in which the tax rate has been lowered.

In order to effectively correct the error consisting in applying an excessive VAT rate to a given sale, the seller should first of all issue corrective invoices to all incorrectly issued VAT invoices.

In a situation where an error is found in the original invoice, resulting in an overstatement of the amount of tax due, the taxpayer reduces the tax base provided that he has, before the deadline for submitting a tax return for a given accounting period, in which the buyer of the goods or services received an invoice correction, confirmation of receipt of the invoice correction by the buyer. On the other hand, if the taxpayer obtains confirmation of receipt by the buyer of the goods or service of the invoice correction after the deadline for submitting the tax return for a given accounting period, he will be able to take into account the correction of the invoice for the accounting period in which he obtained this confirmation.

Incorrect VAT rate on the invoice - is the buyer responsible for it?

The seller is always responsible for issuing the VAT invoice. He is responsible for entering the required data on the invoice. If the buyer received an invoice that contains errors in any information related to the seller or buyer or the designation of goods and services, with the exception of the data specified in § 5 sec. 1 items 6-12, has the right to issue a corrective note.

Among the exceptions that cannot be corrected by issuing a corrective note are the rate and amount of VAT.