Invoices documenting the provision of rental services - rules for issuing
Taxpayers are increasingly buying real estate and then renting it out. The real estate rental market in our country is growing faster and faster due to the arrival of employees from beyond our eastern border. Entrepreneurs often ask whether invoices should be issued documenting the provision of rental services and when the tax obligation of such an economic event arises.
Tax obligation in VAT
The regulations concerning the moment when the tax obligation arises in the tax on goods and services are included in the provision of art. 19a paragraph. 1 of the Act of March 11, 2004 on tax on goods and services (i.e. Journal of Laws of 2017, item 1221 as amended), hereinafter referred to as the VAT Act, according to which the tax obligation arises upon delivery of goods or performance of a service, subject to paragraph 5 and 7-11, art. 14 sec. 6, art. 20 and art. 21 sec. 1.
Pursuant to this regulation, the tax will become due in the month when the goods are delivered or the service is performed and, as a rule, it will be settled for this accounting period.
Under Art. 19a paragraph. 8 of the VAT Act - if before the delivery of goods or the performance of the service, all or part of the payment was received, in particular: prepayment, advance payment, advance payment, installment, construction or housing contribution before establishing a cooperative right to a dwelling or premises for other purpose, tax obligation arises upon its receipt in relation to the received amount, subject to paragraph 5 point 4.
In the case of rental, rental or leasing services, the tax obligation arises in a different period. Pursuant to Art. 19a paragraph. 5 point 4 of the VAT Act, the tax obligation in the case of the provision of rental services, lease, leasing or services of a similar nature arises in a special way, i.e. on the date of issuing the invoice.
However, in accordance with the content of Art. 19a paragraph. 7 of the VAT Act in the cases referred to in sec. 5 points 3 and 4, when the taxpayer did not issue the invoice or issued it late, the tax obligation arises at the time of the expiry of the invoice issuance deadlines specified in art. 106i paragraph. 3 and 4, and in the event that no such deadline has been specified - upon the expiry of the payment deadline. The tax obligation for the lease arises on special principles. This is basically determined by the date of the invoice when it is issued on time. A delay in this respect does not postpone the tax obligation date. On the other hand, an invoice issued prematurely automatically results in the need to recognize a tax obligation. This should be borne in mind when deciding to take this step, especially when the tenancy does not benefit from the exemption.
In the case of the provision of rental services, lease, leasing or contracts of a similar nature in the territory of the country (hereinafter the rental service), the tax obligation arises at the time of issuing the invoice. This rule does not apply to rental services to which the provisions of Art. 28b of the Act, constituting the import of services (Article 19a (5) (4) (b) of the VAT Act).
The moment of issuing the invoice
Pursuant to Art. 106b paragraph. 1 of the VAT Act, the taxpayer is obliged to issue an invoice documenting:
- sale, as well as delivery of goods and provision of services referred to in art. 106a, point 2, made by him for the benefit of another taxpayer of the tax, value added tax or a tax of a similar nature or for the benefit of a non-taxable legal person;
mail order sale from the territory of the country and mail order sale within the territory of the country to an entity other than indicated in point 1;
intra-Community supply of goods to an entity other than indicated in point 1;
receipt by him of all or part of the payment before performing the activities referred to in points 1 and 2, except in the case when the payment concerns the intra-Community supply of goods or activities for which the tax obligation arises in accordance with art. 19a paragraph. 5 point 4.
Pursuant to Art. 106i paragraph. 1, the invoice shall be issued no later than on the 15th day of the month following the month in which the goods were delivered or the service was performed, subject to paragraph 2-8. In the light of Art. 106 and sec. 2 if, prior to the delivery of the goods or the performance of the service, all or part of the payment referred to in Art. 106b paragraph. 1 point 4, the invoice shall be issued no later than on the 15th day of the month following the month in which all or part of the payment was received from the buyer.
Invoices cannot be issued earlier than the 30th day before:
delivery of goods or performance of a service;
receiving, prior to the delivery of goods or the performance of a service, all or part of the payment.
Untimely issued invoice for rental services
If the invoice is issued late or the taxpayer fails to issue it, the tax obligation arises on the date of expiry of the payment deadline.
An active VAT payer on December 27, 2017, he rented his business premises. The contract was concluded from January 1, 2018. According to the contract, the tenant (also the VAT payer) should pay the rent for monthly periods, until the 15th day of each following month. In the case of the rent for January 2018, the landlord issued an invoice with a delay, only on March 10, 2018. The reason for issuing the invoice only in March 2018 was the lack of payment. The tenant did not pay the arrears until March, while the landlord decided that he would issue an invoice only after receiving the rent from the tenant. Importantly, the invoice was included by the lessor in the tax on goods and services for March 2018.
In the analyzed example, untimely receipt of rent payment does not postpone the moment of the VAT obligation. As we have already shown above, the tax obligation in the lease agreement arises on special terms. The tax obligation arose on February 15, 2018. Taking the above into account, despite the fact that the taxpayer issued the invoice only in March, the tax obligation in VAT arose in February 2018.
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The need to correct the VAT-7 declaration
Invoices documenting the provision of rental services included in the settlement for March 2018 require the preparation of two corrections to the VAT-7 declaration. The taxpayer should prepare a correction VAT-7 declaration for February 2018, in which he should take into account the values from the invoice. In addition, he should also correct the VAT-7 declaration for March 2018, in which the invoice was shown. Declaration corrections may result in the necessity to pay interest.
Pre-sale invoices documenting the provision of rental services
If the taxpayer issues a VAT invoice before the date of payment for the rental service, the tax obligation arises on the date of issuing the invoice.
An active taxpayer has rented his premises. The contract was concluded from February 1, 2018. The contract with the tenant is a VAT taxpayer that it will pay the rent for monthly periods until the 10th day of each following month. On March 10, 2018, the taxpayer issued two invoices for the provision of the service for February and March 2018. The above invoices were provided to the tenant. On the invoices issued, the taxpayer indicated the settlement periods and the payment dates.
In this case, the tax obligation will arise in March 2018 in two months' time. Pursuant to Art. 106i paragraph. 7 point 1 of the VAT Act, invoices cannot be issued earlier than the 30th day before the delivery of goods or the performance of the service. We do not apply the above principle to the issue of invoices documenting the rental service, provided that the invoice contains information about the settlement period.
Considering the above, the taxpayer may issue invoices documenting the provision of rental services well in advance, but must remember the above information.