Credit note or Debit note - VAT Treatment

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Credit note or Debit note - VAT Treatment

What is Credit note or Debit note?

A credit note /debit note is a commercial document issued by a supplier/seller to a buyer.

A Credit notes act as a document to evidence the reduction of value in sales and is issued in various situations to correct a mistake, such as when an invoice amount is overstated, the correct discount rate is not applied, goods are faulty / do not meet the buyer›s specifications and are returned to the supplier fully or partially.

Conversely, a debit note reflects an increasing adjustment to consideration to a previously issued Tax Invoice for a supply of goods or services by the supplier.

For VAT purposes, the credit note reflects a decreasing adjustment to consideration to a previously issued Tax Invoice for a supply of goods or services by the supplier.

Circumstances of Issuing a Credit Note or Debit Note

A credit note or debit note in the following cases where a Tax Invoice has already been issued in relation to a Taxable Supply, and one of the following events occurs:

Cancellation of Supply or contract: The Supply is cancelled or terminated after the Supply has taken place or been treated as taking place, in whole or in part. Including the return of advance cash received.

Modification of Contract or supply: There is a material change or alteration to the nature of the Supply resulting in a change in the Tax charged.

Discount or adjustment due to rejections or error in the invoice: The previously agreed Consideration for the Supply is altered for any reason, including due to an offer of an additional discount after the sale was made

Return: The Goods or services or part thereof is returned to the Supplier and the Supplier accepts such return.

 

VAT Treatment

Scenario I : 

If the credit note or debit note, occurred in the same Tax Period in which the original supply was made, or before the Tax Return for that original supply has been filed:

Adjust the Output Tax for the Tax Period in which the original supply took place.

Scenario II :

If a credit note is issued (reducing the value of Original invoice) after the Tax Return for that original supply has been filed:

Adjust the Output Tax for the Tax Period in which the Credit note is issued, or the event giving rise to the adjustment took place, whichever is later. There is a separate column in the tax return for these adjustments.

 

Scenario III :

If a debit note (increasing the value of the original invoice) is made after the Tax Return for that original supply has been filed:

Adjust the Output Tax (upwards) for the Tax Period in which the event giving rise to the adjustment took place

 

Timing for Issue of a Credit note or debit note to the customer

A Credit Note or Debit Note should be issued upon the adjustment to consideration (a maximum time limit is not provided in law but the Authority considers that, in line with the provisions for issue of Tax Invoices, these documents should be issued by no later than fifteen days following the end of the month in which the adjustment happened). The date of issue must be marked on the Credit Note or Debit Note.

 

Format for Credit note or Debit note

The credit note or debit note issued must contain

a reference to the sequential number of the Tax Invoice issued in respect of the original Supply,

and the information required by Regulations to be shown on the corresponding Tax Invoice(50).

There are no other specific format requirements for a credit note or debit note, but it should be clear the adjusted value of the supply and original VAT charged related to the adjustment.

 

One Credit note for adjustments to multiple supplies

A single credit Note or debit note may be issued to reflect adjustments to multiple Tax Invoices issued for the same customer. In such a case, the credit note or debit note should clearly reference all original Tax Invoices which are being adjusted and the corresponding adjustment amount.

 

Download Sample format

 


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