June 1, 2020
What should be written on the invoice and check?
From an accounting perspective for e-residents.
The COVID 19 pandemic has forced us to rethink many things. More and more services are moving online, some products are becoming services or disappear at all. However, accounting has already moved there. Essentially in full. We are no longer run around with plastic bags to take the bills and papers collected there to forward them to the accountant.
To this end, accounting has been driven by technological developments, but also, and above all, by the fact that people operate more and more local independently. It is simply not possible and also necessary to physically provide the basic accounting documents, documents confirming the transactions, etc. to an accountant. You scan the paper and email it to an accountant or directly to online accounting software.
Everything is comfortable, time, and nature saving. That must be the case.
But does each check fit? At the moment, we are not referring here to the fact that which source of expenditure is suitable to be entered in the accounts at all, which is a special advantage cost and which is not. No, that’s not what we mean. The question is in what form the source document, check or invoice must be drawn up. What information must it contain in order to be tip-top when viewed by the state. In order to prevent the evil uncles and aunts from the Tax and Customs Board to jumping on your back and shouting:” This is not a suitable basic document and we are forced, according to the law, to apply a special preferential tax with interest!”.
Ok, then let’s look at the law.
Estonian accounting Act § 7. Source documents
(1) An accounting source document is a certificate in which content and format shall, if necessary, allow a competent and independent party to demonstrate the circumstances and veracity of the occurrence of a business transaction.
(2) Unless otherwise provided by law or regulation issued on the basis thereof, a source document shall contain at least the following information concerning a business transaction:
1) time of occurrence;
2) description of economic content;
3) figures, for example, quantity, price, and amount.
(3) If the counterparty of an accounting entity is an accounting entity, state accounting entity or foreign legal person, an invoice concerning the transfer of goods or provision of services shall contain in addition to the items specified in subsection (2) of this section also the invoice number or other identification and the information enabling to identify the parties to the transaction.
So then, for example, the invoice is paid for by the company or credit card of the company, the bus ticket is associated with the employee’s commuting, the parking ticket has the company car number, etc. Under the Income Tax Act, a transaction is certified by a proper source document. If the source document is not eligible, the distribution is taxed as a non-business expense.
If the content of the transaction indicated on the expense document does not allow the conclusion to be drawn that the business is related to expenditure, the taxpayer must provide additional evidence to prove the transaction. In the cost document, initially missing information may be added; in any case, the document must show what the content of the transaction (including figures) was, the date of the transaction, the invoice number and who were the parties to the transaction.
What about VAT?
Section 37 (7) of the Value Added Tax Act stipulates the requisites which must be present on the document on the basis of which the input tax is deducted.
There is no deduction of input tax on cashier’s checks, no matter what information the company enters there. In exceptional cases, input VAT may be deducted on the basis of a simplified invoice.
The recipient’s information may not be invoiced in the case of the provision of a passenger transport service, the issue of an invoice through a parking machine, an automatic gas station payment terminal, or similar equipment. When receiving a simplified invoice, the taxable person who has purchased the goods or services has to enter his name and tax identification number on the invoice. The deduction of input tax on a simplified invoice also requires the trader to prove that the service has been acquired for the taxable business.