Issue of an advance invoice before receiving the payment

Service-Tax

Receiving prepayments before performing a service or delivering goods is a common practice among entrepreneurs. Therefore, we check whether it is also possible to issue an advance invoice before receiving the payment? You will find the answer in this article.

Time limits for issuing an invoice in the light of the provisions of the VAT Act

The invoice is 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. However, according to Art. 106i paragraph. 7 of the VAT Act, 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.

Therefore, it should be noted that the VAT Act gives the right to issue an advance invoice up to 30 days before receiving the prepayment. Therefore, it is a document that will serve as the basis for the contractor to make the payment. However, in such a situation, the earlier issue of an advance invoice does not result in a tax obligation with the seller.

Example 1.

Taxpayer X issued an advance invoice on May 15, 2021, even before the actual receipt of the advance from the contractor. The amount was transferred to the bank account on June 10, thus the 30-day period was respected. Therefore, the question arises: when will the tax obligation arise in relation to the advance payment received?

Pursuant to Art. 19a of the VAT Act, the tax obligation arises when the goods are delivered or the service is performed. However, if the entrepreneur has received all or part of the payment before the delivery / performance of the service, this obligation will arise upon their receipt. Therefore, in the described situation, the tax obligation will arise when the advance payment is received, i.e. on June 10 (the moment of issuing the invoice will not affect the VAT obligation). Importantly, the recipient will be able to deduct VAT, but not earlier than when the tax obligation arises with the seller (i.e. he receives an advance payment).

Issue of an advance invoice prior to receipt of the payment that has not been finally received

There are situations where, in accordance with the regulations, the entrepreneur issues an advance invoice 30 days before receiving it, but the transaction will ultimately not be completed. Therefore, the question arises, how should such an invoice be treated and how to avoid paying the tax shown on a "blank" invoice? Pursuant to Art. 108 sec. 1 of the VAT Act, if a legal person, an organizational unit without legal personality or a natural person issues an invoice in which it shows the amount of tax, it is obliged to pay it.

It is a national provision which is an equivalent of the EU art. 203 of Directive 2006/112 / EC: which states thatEach person who shows VAT on the invoice is obliged to pay the VAT.

Therefore, it should be stated that an invoice with the indicated amount of VAT, introduced into legal circulation, causes the necessity to pay this tax. If the entrepreneur issues an advance invoice and has not received the payment within 30 days of its issuance, it can be assumed that we are dealing with the so-called "Blank invoice". Thus, the information contained in such a document is not factually correct. It will not matter whether the payment was made or late. Importantly, there is a risk that the contractor, having an empty invoice, could have deducted VAT contrary to the regulations.

According to the case law, empty invoices will not be included in the VAT return. For confirmation, it is worth citing the judgment of the Supreme Administrative Court of 4 December 2009, ref. No. act I FSK 1859/08, which stated: (...) it should be stated that there was a factual circumstance in the case, i.e. issuing an invoice documenting the service, which in fact did not take place, was not related to the event which, under the VAT Act of 2004, generates the obligation to pay tax on goods and services. Moreover, the amount itself did not constitute VAT either. Accordingly, it was not possible for the applicant to use the procedure reserved for the settlement of that tax and to show such an amount on its periodic tax return.

The judgment of the Provincial Administrative Court in Wrocław, case no. I SA / Wr 1644/14 of June 30, 2015, which stated: In the case under examination, there was a dispute whether the taxpayer of value added tax, who issued invoices that did not document actual activities and therefore (...) is obliged to pay the tax shown on these invoices, has the right to correct these invoices. As it results from the case files, the party made such a correction [...] in March 2013 and, taking into account the corrected invoices, corrected the VAT-7 declaration.

It should be pointed out that this issue has already been the subject of many judgments of the CJEU and administrative courts. The jurisprudence is consistent as to the fact that the claim indicated in Art. 108 AE (including due to a blank invoice and its placing on the market) cannot be shown in the declaration in which the taxpayer settles the tax on goods and services, and the consequence of this is the inadmissibility of including the settlement system also corrections of invoices issued pursuant to art. 108 sec. 1 u.p.t.u. (e.g. judgments of the Supreme Administrative Court in Warsaw of January 19, 2010, file reference number I FSK 1759/08, of January 27, 2012, file reference number I FSK 569/11) (...).

Start a free 30-day trial period with no strings attached!

Bearing in mind the above considerations, it can be concluded that an empty invoice should not be included in the VAT declaration for a given settlement period, if it did not document the actual economic event, which is the fact of receiving an advance payment from the contractor. Importantly, as indicated by the Ministry of Finance, a taxpayer who issued an advance invoice and did not receive payment within 30 days should eliminate the invoice from business transactions immediately after 30 days from its issuance. From that moment on, it becomes an empty invoice and in accordance with Art. 103 paragraph 1 of the VAT Act, taxpayers are required to calculate and pay tax for monthly periods, without the request of the head of the tax office, to the 25th day of the month following the month in which the tax obligation arose, to the account of the tax office, without the request of the head of the tax office.

Therefore, it is possible that if the taxpayer makes an effective correction of the invoice by that time (and receives confirmation of receipt of the correction from the contractor), he will not be obliged to pay the tax indicated on such an invoice. It will then make every effort to ensure that the state budget is not diminished. However, it should be emphasized that individual interpretations concerning the discussed issue have not yet been issued, therefore it would be worth considering using pro forma invoices for this type of transactions, which by their nature do not have tax effects.

When does the entrepreneur not issue advance invoices?

Please note that in some cases the taxpayer will not be required to issue an advance invoice. According to Art. 106b paragraph.1 point 4 of the VAT Act, the taxpayer will be obliged to issue an invoice documenting the receipt of all or part of the payment, prior to the delivery of goods or the performance of the service, except when the payment concerns:

  • intra-Community supply of goods

  • supply of electricity, heat or cooling as well as line gas,

  • provision of services:

    • telecommunications,

    • listed in item 24-37, 50 and 51 of Annex 3 to the Act

    • rental, lease, leasing or services of a similar nature,

    • protection of persons and services of security, supervision and storage of property

    • permanent legal and office services,

    • distribution of electricity, heat or cooling and line gas

Therefore, in the case of these services, the taxpayer will not be required to issue an invoice documenting the receipt of an advance payment for them.