VAT IMPLICATIONS ON ADVANCE RECEIVED

Advance received is a portion of contractual sum which the customer has agreed to pay to the supplier for supplying the goods or services.

The Decree Law doesn’t contain any specific Article regarding Advances, therefore, the normal provision relating to Date of Supply contained in Article 25 shall be applicable which states as below.

The point of taxation will be the earliest of the following dates:

a) Date on which goods were transferred if the supplier is responsible for such transfer.
b) Date on which recipient takes possession of the goods if the recipient is responsible for the transfer.
c) In case of assembly or installation, the date of which assembly or installation gets completed.
d) Date on which goods are imported under Custom Legislation.
e) If the supply is on returnable basis, the date on which recipient accepted the supply or a date not later than 12 months from the date of supply.
f) Date on which the provision of service is completed.
g) Date of issue of tax invoice for the advance payment or
h) Date of receipt of payment.

HOW IS VAT ON ADVANCE RECEIVED SHOWN IN VAT RETURN

VAT on advance received will be reported and paid under box 1 of VAT form 201. It will be shown as part of standard-rated supplies.

INPUT VAT ON ADVANCE PAID

The VAT liability due on such advance payments should be included in the return for the period when the tax point occurs.

The recipient should fulfill the following conditions to be able to recover the input tax
a) The recipient must receive and preserve the tax invoice as per the provision of the law.
b) The recipient pays the consideration for the supply or any part thereof

If the above conditions are not fulfilled, the recipient may recover the input tax in the subsequent return once the conditions are fulfilled.

To conclude we can say that VAT paid with advance payment can be recovered provided, the receiver has tax invoice in possession. If the tax invoice is not available, it will be recovered in the tax period when the tax invoice is received.

by Urvi Kukreja