Self-invoicing – this is how you save financing expenses
What is “self-invoicing” and who is it good for?
A self-invoice is an invoice that a person issues to himself, after receiving permission not to pay VAT at the time of the transaction.
How does such a situation happen, and why is it good for us?
In a normal situation, when dealer A pays dealer B for a service or product he received, party B issues an invoice to party A for the amount of the transaction plus the VAT required from it, so for example a transaction of NIS 100,000 will be subject to VAT at the rate of 18% as of today, and therefore a situation will arise where A will pay an additional NIS 18,000 on top of the original transaction amount, when in practice he will be able to claim the refund only in the next VAT reporting period.
It turns out that in the transaction carried out on January 1, 2014, Party A, who pays 18,000 NIS, will be able to demand a refund only on March 15, 2014, which is his next reporting period, and he will actually receive them only after about 30 days from the date of the refund request.
In the bottom line, a person paid on January 1, 2014 and received the money on April 15, 2014 – this is 135 days in which that person had to finance the banks until receiving a refund.
Section 20 of the VAT Law comes to prevent this situation, and to make it easier for the traders, especially in a situation where the payment is fixed and known in advance as rent.
How does this actually happen?
Both parties fill out an original form with only original signatures (MCA Appendix 1) and receive approval from the VAT station of one of the two parties.
The payer issues himself an invoice on the one hand, and thus obligates himself to pay VAT and then demands the VAT refund – so in practice he neither pays nor demands a refund from the state.
Every self-employed person knows that a positive cash flow is critical for day-to-day operations, and especially in a business at the beginning, that every shekel is important for establishing a proper business infrastructure, therefore if there is a legal and simple possibility to reduce the high and fixed payment as rent – how good!
This is an action that can be performed even at the beginning of the lease, or after a long period of time, it is not important when we apply for the relief.
This is the place to say that Section 20 provides an excellent solution to a situation where there is a fear that the party receiving the payment will not transfer the VAT owed by him to the state, because it is known that my refund depends on his payment, so when no VAT payment is made in the first place, we do not have this fear .
It is important to emphasize: a rental contract between the parties must be attached in order to fulfill T.36 to the VAT and receive the relief.
A final word:
Most of us see the tax authorities as a threatening and harassing factor to our success and business conduct, similar to other areas of life, knowledge = power, so it’s worth updating yourself or using a professional who will do it for you.
As is our custom in the sanctuary, we will do our best so that you pay the minimum.