Vat implication on a proforma invoice and issuing an invoice in USD

[prineesha]

We issued a client a pro forma invoice for advance payment. The client has paid the deposit, but we have not supplied the service as yet.
Do we need to declare the output vat? Is a taxable supply identified the earlier of payment received or invoice issued? Or do we declare the output vat when we issue the tax invoice.

Also the pro forma invoice was issued in USD. In terms of SA Law does the pro forma invoice need to show the exchange rate and rand value as well on the invoice?

[BusFact]

Here follows my take on this, but its probably prudent to wait for additional confirmation:

You only declare the output VAT when you supply the service and generate the Tax Invoice. VAT is not triggered by the payment receipt for almost all VAT vendors, its the invoice.

No, I do not believe that the tax invoice needs to show the exchange rate and Rand value. However the ledger in your accounting books will need to show the invoice value in Rands.

On a side note, are you sure this is a VATable transaction? Usually USD payments imply that the goods are being exported, although this is not always the case.

[CLIVE-TRIANGLE]

Generally, it is as you say "Is a taxable supply identified the earlier of payment received or invoice issued?", in that it is the earlier of.
But a deposit is frequently excluded. Have a look at this document;

https://www.saica.co.za/integritax/1998/627_VAT_on_deposits_received.htm

I am not aware of any legal issues regarding the pro forma's and the currency used. However as Busfact mentions, you have to maintain your records in the currency of country of location. It is normal to reflect the home currency. I suppose nothing stops you from reflecting the rate too, although for a buyer it is different than to a seller in the absence of forward cover.

Furthermore, you have to account for exchange rate differences. This means the difference between the rate at date of revenue recognition versus the rate at date of receipt of the money (a realised gain or loss), and date of revenue recognition versus reporting date in respect of unpaid sales (an unrealised gain or loss). The IFRS requirement for the time of revenue recognition is pretty complex and is being revised. You should get your auditors / accountants to advise you. Realise that it will affect when you reflect the sale, which will in turn affect the calculation of the currency gains or losses.

[Mike C]

As far as I understand it SARS does not recognise a Pro-Forma Invoice at all. Only those clearly marked Tax Invoice with all the necessary requirements are recognised. Certainly a customer cannot claim VAT back from SARS using a Pro Forma Invoice.

I think that some businesses use Pro-forma Invoices when they should be using Sales Orders.

I always understood an Invoice to be a list of goods sent or services provided (not merely promised or partially provided), with a statement of the sum due for such services or goods.

This is how a pro-forma Invoice is described in the business dictionary:

An abridged or estimated invoice sent by a seller to a buyer in advance of a shipment or delivery of goods. It notes the kind and quantity of goods, their value, and other important information such as weight and transportation charges. Pro forma invoices are commonly used as preliminary invoices with a quotation, or for customs purposes in importation. They differ from a normal invoice in not being a demand or request for payment.

[BusFact]

Yeah, pro forma invoice tends to be a quote made out in the format and layout of an invoice. It has no tax status. It is often used to request deposit payments as it accurately reflects what the final invoice will look like.

[CLIVE-TRIANGLE]

As far as I understand it SARS does not recognise a Pro-Forma Invoice at all. Only those clearly marked Tax Invoice with all the necessary requirements are recognised. Certainly a customer cannot claim VAT back from SARS using a Pro Forma Invoice.

There are two sides to it; the seller's and the purchaser's. The sellers position is not necessarily dependent on when he issued a tax invoice. His position, for VAT purposes, is determined by the earlier of payment received or invoice issued. Clearly he can be VAT liable even when no tax invoice has been issued.

The purchaser's position, if in RSA, for VAT purposes, is determined by a Tax Invoice.