Entrepreneurs’ life is not easy. Many of them do not receive payments for the goods sold or services performed on time. Regardless of whether they get the money or not, they have to pay VAT on invoices issued for unreliable payers.
Such situation may get them into financial straits. On one hand, they invested their time and money, often raw materials in order to execute an order we have not receive money for and – on the other hand – they have to give some of the money on unpaid invoice to the tax office.
It is worth knowing that each entrepreneur is entitled to recover VAT on unpaid invoices, the so-called uncollectible receivables. Uncollectible receivables are those that have not been paid within 150 days since their maturity dates. However, one must remember that only those applying for the refund will get the money back.
The terms to be complied with by a creditor to get a refund toward bad debts are as follows:
1) Delivery of goods or provision of service is performed in favour of an entity registered as an active VAT taxpayer, which is not undergoing a bankruptcy or liquidation proceedings,
2) as at the day preceding the day of tax return filing, in which the adjustment is made:
a) the creditor and the debtor are registered as active VAT taxpayers,
b) the debtor is not undergoing a bankruptcy or liquidation proceedings,
3) no more than 2 years have passed since the issuance date of the invoice evidencing the debt, counting since the end of the year, during which it was issued.
However, the seller will not recover the already paid VAT when there are capital connections between the seller and the buyer or if the debt was disposed of.
How should it be done in practice? A refund for bad debts is to be shown in the VAT tax return for the month in which 150th day passed since the ineffective maturity date stated in the invoice or in the corresponding contract.
If the debtor decides to pay for the invoice or the debt has been disposed of after an entrepreneur has received the refund, the creditor is obliged to increase taxation basis and the amount of output tax due for the period during which the receivable has been settled or disposed. If the receivable has been partially settled, then the taxation basis and the amount of output tax shall be increased by than part.
Our advice: It is no use delaying with debt collection. When we postpone our actions, we reduce our chances to recover our money. However, if the statutory 150 days have passed, the money was not paid and the amount of tax is high, take care not to lose the money we have additionally put in from our own pocket.
Published on: 9 November 2016