Bad debt reduction? For whom? After what time?
Bad debt reduction gives the VAT taxpayer chance to reclaim tax deduced for unpaid invoices. Till the end of 2018, the deadline amounted to 150 days. After recent amendment, the taxpayer may claim VAT refund faster, even after 3 months. The deadline of 90 days also applies to the debtor who after 3 months will be obliged to correct VAT charged on unpaid invoices. Thanks to this change, entrepreneurs may now reclaim tax on bad debts faster. Creditors have the right to apply bad debt reductions earlier and may earlier reduce the VAT due.
What are the conditions to use bad debt reduction?
- the supply of goods or services is made to an active VAT taxpayer not being subject to restructuring proceedings, bankruptcy proceedings or pending liquidation;
- on the day preceding the day of filing a tax return in which the adjustment is made:
- the creditor and the debtor are taxpayers registered as active VAT taxpayers,
- the creditor is not in the process of restructuring, bankruptcy or pending liquidation;
- less than 2 years have passed from the date of the invoice documenting the claim, counting from the end of the year in which it was issued.
When is a tax reduction not applicable?
- the debtor settled the due amount on the last day of the settling period, in which the 90 day deadline was reached.
- on the last day of the month, in which 90 days elapse from the day of falling payment expiration the debtor is in the process of restructuring, bankruptcy or pending liquidation;
- in the case of partial settlement of the receivables till the 90th day from its maturity , as defined in the contract or invoice, the adjustment includes the input tax on the unpaid part of the claim.
It is also worth remembering that we are not obliged to notify the debtor about the applied relief for bad debts. This action is unnecessary due to the fact that the debtor is obliged to adjust the input tax regardless of whether his contractor has decided to correct its own.