How to settle the advance income tax payment?


Service providers sometimes charge for the performance in advance in the form of an advance payment. In income tax, the advance payment is settled differently than the payment of the amount due before the service is provided. So what is the difference between the advance payment and the final settlement of receivables? Often the difference is difficult to define. Check how to settle the advance income tax!

Advance payment for future transactions

The advance payment is not definitive due to the possibility of its return each time before the delivery of goods or services. It is paid in advance as a security (confirmation of the will to purchase) for the performance of the contract relating to future reporting periods. Upon receipt, the advance payment does not constitute income tax revenue for the seller, nor does it generate tax deductible costs for the buyer. Such an advance payment on the basis of income tax is settled only when the service is provided or the invoice is issued (depending on which event occurs first).


Example 1.

The taxpayer provides advisory services for which, in accordance with the concluded agreement, as a rule, he receives payments for the future provision of services (even in the amount of 100% of the receivable).

The taxpayer does not recognize the advance payment as revenue in the KPiR on the date it is received, but only settles it when the service is provided or the invoice is issued (earlier date).

Payment of amounts due before the service is provided

If the advance payment for the performance of the service or the sale of goods in subsequent reporting periods is related to the settlement of the receivables before the performance of the service (before the sale of the goods) and if the payment is final and final - it generates revenue on the date of its receipt.


Example 2.

For the advance payment, the applicant provides its customers with the right to access domains, tools and applications.

The taxpayer recognizes the payment related to the payment of receivables before the service is rendered as income as soon as it is received - due to its final nature.