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Risks that may arise during advance payment without an electronic invoice.
Risks that may arise during advance payment without an electronic invoice.
One of the important topics constantly discussed on the agenda is the payment of VAT during advance payment. If an electronic invoice has not been sent to the VAT payer when making an advance payment, what risks and obligations might arise for the paying and receiving parties?
Elchin Akbarov clarifies the issue.
According to Article 58.6 of the Tax Code, based on Article 175.1.3 of this Code, a financial sanction in the amount of 50% of the overdue VAT amount is applied to the taxpayer for not paying the VAT amount within 1 business day from the date the value of the goods (works and services) is paid by the taxpayer specified in Article 175.8 of this Code (except for the case specified in Article 177.5 of this Code).
Now, let's examine the above-mentioned articles separately:
Article 175.1.3 of the Code states that if two or more payments are made according to the electronic invoice issued to the taxpayer, each payment is considered a separate transaction for the amount of the payment. The VAT amount must be paid within one business day from the date the value of the goods (works and services) received according to the electronic invoice issued to the taxpayer is paid. In this case, if two or more payments are made for the value of the goods (works and services), the VAT amount should be paid into the VAT deposit account in accordance with the amount of the payment made. This means that when an electronic invoice is issued, it is envisaged to pay the VAT into the deposit account.
Article 175.8 of the Tax Code states that VAT payers, as well as legal entities and budget organizations whose shares and stakes are more than 50% owned by the state, must transfer the VAT amount into the VAT deposit account for the goods, services (works) they receive according to the electronic invoices issued to them, as well as for the residential and non-residential areas purchased from persons engaged in building construction activities. It is clear that not every person is obliged to pay VAT into the deposit account, only the persons specified in Article 175.8 have this obligation.
Therefore, by summarizing, we can say that the paying party can pay the VAT amount until the electronic invoice is sent, i.e., conducting the transaction without the main amount does not create any obligation, does not result in a fine or financial sanction.
What obligations arise for the receiving party when the payment is made in this manner?
According to Article 166.6 of the Tax Code, if the payment is made before the goods (works, services) are delivered, the time of the taxable transaction is considered the time the payment is made. If two or more payments are made for a taxable transaction, each payment is considered a separate transaction for the amount of the payment. Article 166.7 states that for the purposes of this article, payment means the payment of the VAT-free value of the delivered goods (works, services) or the VAT amount. Therefore, by summarizing these two articles, we conclude that the receiving party must declare the VAT liability and pay it to the state budget from its own funds even if it does not receive the VAT amount, and if it receives the VAT amount but does not receive the main amount, it must again declare the corresponding main amount and create the VAT liability and pay it to the state budget from its own funds.
Example: According to the contract dated August 1, 2024, concluded between the seller "AA" LLC and the buyer "CC" LLC, a 50% advance payment must be made within 5 days after the contract for goods worth 10,000 manats, and the goods must be delivered within the next 60 days. However, the buyer LLC does not have VAT funds in its VAT deposit account, and the funds in the bank are only sufficient to pay the 50% advance. Thus, the advance payment is made, and the electronic invoice will be sent when the goods are delivered. In this case, the seller "AA" LLC must reflect the received 5,000 manat advance payment in the VAT report for August and pay 900 manats of VAT to the state budget:
5,000 x 18% = 900 manats.
Since the buyer "CC" LLC did not pay the 900 manat advance VAT amount, it is not subject to any fine or financial sanction. However, it must pay the VAT amount by the day the electronic invoice is sent. Otherwise, a financial sanction in the amount of 50% of the VAT amount may be applied to it.
One of the important topics constantly discussed on the agenda is the payment of VAT during advance payment. If an electronic invoice has not been sent to the VAT payer when making an advance payment, what risks and obligations might arise for the paying and receiving parties?
Elchin Akbarov clarifies the issue.
According to Article 58.6 of the Tax Code, based on Article 175.1.3 of this Code, a financial sanction in the amount of 50% of the overdue VAT amount is applied to the taxpayer for not paying the VAT amount within 1 business day from the date the value of the goods (works and services) is paid by the taxpayer specified in Article 175.8 of this Code (except for the case specified in Article 177.5 of this Code).
Now, let's examine the above-mentioned articles separately:
Article 175.1.3 of the Code states that if two or more payments are made according to the electronic invoice issued to the taxpayer, each payment is considered a separate transaction for the amount of the payment. The VAT amount must be paid within one business day from the date the value of the goods (works and services) received according to the electronic invoice issued to the taxpayer is paid. In this case, if two or more payments are made for the value of the goods (works and services), the VAT amount should be paid into the VAT deposit account in accordance with the amount of the payment made. This means that when an electronic invoice is issued, it is envisaged to pay the VAT into the deposit account.
Article 175.8 of the Tax Code states that VAT payers, as well as legal entities and budget organizations whose shares and stakes are more than 50% owned by the state, must transfer the VAT amount into the VAT deposit account for the goods, services (works) they receive according to the electronic invoices issued to them, as well as for the residential and non-residential areas purchased from persons engaged in building construction activities. It is clear that not every person is obliged to pay VAT into the deposit account, only the persons specified in Article 175.8 have this obligation.
Therefore, by summarizing, we can say that the paying party can pay the VAT amount until the electronic invoice is sent, i.e., conducting the transaction without the main amount does not create any obligation, does not result in a fine or financial sanction.
What obligations arise for the receiving party when the payment is made in this manner?
According to Article 166.6 of the Tax Code, if the payment is made before the goods (works, services) are delivered, the time of the taxable transaction is considered the time the payment is made. If two or more payments are made for a taxable transaction, each payment is considered a separate transaction for the amount of the payment. Article 166.7 states that for the purposes of this article, payment means the payment of the VAT-free value of the delivered goods (works, services) or the VAT amount. Therefore, by summarizing these two articles, we conclude that the receiving party must declare the VAT liability and pay it to the state budget from its own funds even if it does not receive the VAT amount, and if it receives the VAT amount but does not receive the main amount, it must again declare the corresponding main amount and create the VAT liability and pay it to the state budget from its own funds.
Example: According to the contract dated August 1, 2024, concluded between the seller "AA" LLC and the buyer "CC" LLC, a 50% advance payment must be made within 5 days after the contract for goods worth 10,000 manats, and the goods must be delivered within the next 60 days. However, the buyer LLC does not have VAT funds in its VAT deposit account, and the funds in the bank are only sufficient to pay the 50% advance. Thus, the advance payment is made, and the electronic invoice will be sent when the goods are delivered. In this case, the seller "AA" LLC must reflect the received 5,000 manat advance payment in the VAT report for August and pay 900 manats of VAT to the state budget:
5,000 x 18% = 900 manats.
Since the buyer "CC" LLC did not pay the 900 manat advance VAT amount, it is not subject to any fine or financial sanction. However, it must pay the VAT amount by the day the electronic invoice is sent. Otherwise, a financial sanction in the amount of 50% of the VAT amount may be applied to it.