VAT tax (part 11) - Bad debt relief

Service-Tax

Bad debt relief has been regulated in the VAT Act and the Tax Ordinance. Since January 2013, a number of changes have been introduced in this regard, which aroused considerable controversy.

However, it was easier for entrepreneurs who did not receive payment of their receivables to apply for a refund of the tax on goods and services. On the other hand, the debtors were obliged to correct the VAT, which they deducted upon receipt of the purchase invoice and did not make the payment within the statutory deadline.

Bad debt relief - income

The taxpayer may adjust the tax base and the tax due on the supply of goods or services in the territory of the country in the case of claims, the irrecoverability of which has been proven. The correction also applies to the tax base and the tax amount attributable to a part of the claim amount.

The irrecoverability of receivables is considered probable if it has not been settled or disposed of in any form within 150 days from the date of its payment date specified in the contract or invoice.

To be able to make a correction, the following conditions must be met:

  • the delivery of goods or the provision of services is made to the taxpayer referred to in art. 15 sec. 1, registered as an active VAT taxpayer, not in the process of bankruptcy or liquidation;
  • on the day preceding the date of submission of the tax declaration, in which the correction referred to in paragraph 1 is made 1:
    • the creditor and the debtor are taxpayers registered as active VAT payers,
    • the debtor is not in bankruptcy or in liquidation;
  • 2 years have not elapsed from the date of issuing the invoice documenting the claim, counting from the end of the year in which it was issued.

This adjustment may be made in the settlement for the period in which the irrecoverability of the debt is considered probable, provided that by the date the creditor submits the tax declaration for this period, the debt has not been settled or disposed of in any form.

The creditor is obliged, together with the tax return in which he makes the correction, to notify the competent head of the tax office about the correction, together with the amount of the correction and the debtor's data. For this purpose, the entrepreneur should attach a VAT-ZD notification, addressed to the Head of the Tax Office, to the VAT declaration, which includes the adjustment for the relief for bad debts.

Where, after the submission of the tax return, in which the adjustments referred to in paragraph 1 have been made 1, the receivable has been settled or disposed of in any form, the creditor is obliged to increase the tax base and the amount of tax payable in the settlement for the period in which the receivable was settled or disposed of. In the event of partial payment of the amount due, the tax base and the amount of tax due are increased in relation to this part.

Bad debt relief - costs

In the event of failure to settle the amount due resulting from the invoice documenting the delivery of goods or provision of services within the territory of the country within 150 days from the date of its payment specified in the contract or on the invoice, the debtor is obliged to correct the deducted amount of tax resulting from this invoice, in the settlement for the period on which 150 days have elapsed from the date of expiry of the payment deadline specified in the contract or on the invoice.

He does not correct the deducted VAT if the debtor has paid the amount due no later than on the last day of the settlement period, in which the 150th day from the date of expiry of the due date.

In the event of partial payment of the amount due within 150 days from the date of its payment deadline specified in the contract or on the invoice, the correction applies to the input tax for the outstanding portion of the amount due.

In the case of payment of the amount due after the correction, the taxpayer has the right to increase the amount of the input tax in the settlement for the period in which the amount due was settled by the amount of the previously adjusted tax.