VAT on payments on account: VAT on deposites on account becomes payable in 2023
Since January 1, 2023, VAT becomes payable on the collection of down payments in proportion to the amount collected. Promulgated by the law n° 2021-1900 of December 30, 2021 of finance for 2022, for any collection of installments on the supply of goods, the VAT on the amount of this installment will have to be declared and paid back.
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What is a deposit?
A deposit is a sum of money that is paid in advance to reserve or purchase a good or service. The payment of the deposit is a way to show the good faith of the buyer and to commit to the transaction. The deposit is often paid when a contract is signed and is deducted from the total price to be paid when the good or service is delivered or provided. Generally, the deposit is non-refundable, except in the event of the seller’s breach of contract.
Eurofiscalis is an accounting firm specialized in international trade and intra-community VAT. We help our clients to develop internationally.
What was the VAT rule on advance payments in France before 2023?
Until now, VAT on the supply of goods was only payable upon actual receipt of the goods by the buyer. However, VAT on services was due upon payment of a deposit. In 2021, the Administrative Court of Appeal of Nantes ruled that this rule was contrary to the European Union VAT Directive, in particular Article 65, which provides that VAT is due upon payment of a deposit, regardless of the type of transaction: goods or services. This situation was considered paradoxical and favored service providers over sellers of goods.
What does the law change about the VAT liability on deposits for buyers?
The Finance Law for 2023 provides that VAT will become payable upon receipt of the advance payment, up to the amount collected. This means that :
- In the absence of a down payment, VAT will remain payable at the time of payment on delivery.
- In case of a down payment, the seller will have to pay back the VAT in proportion to the amount of the down payment.
This new rule is advantageous for buyers, as they can only deduct VAT on a transaction when it is due at the seller’s. From now on, they will be able to deduct VAT on their purchases as soon as they make a down payment, without having to wait for the final delivery of the goods.
It is important to note that, if the invoice mentions VAT, buyers can already deduct it on the down payments made, even before January 1, 2023. The Administrative Court of Appeal of Nantes has ruled that the current framework, which is not in line with European law, should not prevent the deductibility of VAT.
Mandatory and fiscal information related to the VAT on account of the delivery of goods.
Invoicing
When a down payment is collected, an invoice must be issued. This invoice must indicate the amount of VAT (in accordance with article 289 of the CGI) as well as the usual information of any invoice, such as the mention “INVOICE”, the number, the date and the identification of the parties.
This invoice must also mention the nature of the invoicing (advance payment) and refer to the contract concerned by the advance payment, for example: ” ACOMPTE SUR COMMANDE OU DEVIS N°… “.
The VAT rate invoiced is the one applicable to the service or the good subject to the down payment. If the down payment concerns a good taxable on the margin, no VAT will be charged on the invoice.
The French VAT return ca3
The Value Added Tax must be paid to the tax authorities on the CA3 of the month in which the advance payment is received.
For the month of payment or collection of the deposit:
The amount excluding tax of the down payment must be added to the turnover excluding tax to be declared on line A1. The amount of VAT on the down payment must be added to the amount of VAT on the turnover in the box of the corresponding VAT rate.
In case of imputation or cancellation of an order:
The VAT amount of the down payment will be deducted from the VAT turnover declared on the ca3 and the VAT amount corresponding to the down payment will be deducted from the VAT amount of the turnover.
Eurofiscalis is an accounting firm specialized in international trade and intra-community VAT. We help our clients to develop internationally.
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