Issuing invoices is an integral part of every business. For many of you, it might be a tedious task, but the revenues of trading companies must be collected somehow, so there’s money for salaries, right?
The invoicing rules apply to everyone who performs independent economic activity – traders, agricultural producers, professionals, and individuals. In Bulgaria you issue an invoice regardless of whether you are registered for VAT or not.
This article will focus on invoices issued by VAT registered entities (Value Added Tax).
According to Art.112, para. 1 of the VAT Act: A tax document within the meaning of this law is: 1. the invoice; 2. the notice to the invoice; 3. the protocol.
Art. 113, para. 1 describes the obligation of every taxable person – a supplier, to issue an invoice for the goods or services provided by them or when receiving an advance payment unless the delivery is documented with a protocol as per Art. 117. The following lines describe cases where an invoice may not be issued. The invoice requirements are described in Art.114 of the VAT Act.
We’ve gathered some common mistakes made in practice, leading to “accounting mess,” which we should strive to avoid:
1. Some of the main details in the invoice are missing.
If the document lacks a number and issue date; name, address, and identification number of the supplier; name, address, and identification number of the recipient; quantity and type of goods or type of service; the unit price excluding tax and the taxable base of the delivery; the tax rate; the amount of tax; the date when the tax event of the delivery occurred, or the date when the payment was received; or some of the other mandatory details mentioned in Art.114 of the VAT Act, this might lead to repeated communication between the supplier and the recipient and/or their accountants. It may also lead to an inspection by the National Revenue Agency (NAP) and a denial of a tax credit.
2. The supplier or recipient’s details are incorrect.
If you enter incorrect details of your counterparty – the recipient of the delivery, when issuing an invoice, it means that you have made a delivery to one entity but have issued an invoice to another. If you input wrong details of the issuer of the invoice (the supplier), it means that the recipient won’t be able to identify the supplier and probably won’t be able to use a tax credit for the invoice. In some cases, mentioning such an invoice in sales/purchase journals might lead to an inspection by the National Revenue Agency (NRA) or NAP in Bulgarian language. The mistake made between the counterparties should be clarified.
3. Issuing invoices with a backdate.
You forgot to issue an invoice? According to Art. 114, para. 1 of the VAT Act: The invoice must necessarily contain: 1. name of the document; 2. a sequential ten-digit number containing only Arabic numerals, based on one or more series, depending on the reporting needs of the taxable person, which uniquely identifies the invoice; 3. issue date. In this context, an invoice with a higher sequential number cannot be issued on an older date.
If you genuinely needed to issue the invoice on a specific date but missed the 5-day deadline, it’s better to issue the invoice currently. This may upset the counterparty, but the responsibility is yours, not theirs. There is a property penalty/fine for both an invoice not issued on time and an invoice issued but included in the subsequent tax period, not the current one. In practice, it’s relatively rare for someone to be fined for this, but it’s possible, especially if you are reclaiming VAT for that specific month.
If you haven’t issued an invoice, this leads both to uncharged VAT and a deviation in the reporting of revenues, consequently reducing the corporate tax. This might trigger an inspection by the National Revenue Agency (NAP).
4. Skipping invoice numbers.
If you accidentally skipped an invoice number, cancel the number left unused and continue ahead. Under no circumstances should you use that number by setting a date that corresponds to the numbering much after it, as would happen if you forget a number.
5. Canceling invoices without notifying your counterparties.
In practice, VAT-registered entities sometimes cancel the invoices they have issued without informing their counterparties. Why do they do this? To avoid paying VAT. What are the consequences? The invoice recipients deduct the VAT they paid to the supplier, but the supplier hasn’t declared it. This will lead to an inspection by the National Revenue Agency (NAP) of both the recipient and the issuer of the invoice. If the requirements for canceling an invoice aren’t met, the issuer will likely have to declare the issued invoices in the sales journal again and owe VAT.
