How to account for discounts on foreign invoices

In practice, we encounter more and more discounts for early payment. The customer is entitled to this discount in accordance with the agreed business terms and conditions, usually if an invoice is paid by the set due date, whereas it is necessary to subsequently reduce the tax base and value added tax so as to reflect the discount.

In terms of VAT, the early payment discount represents a correction of the tax base and of the amount of tax within the meaning of Section 42(1)(f) of the VAT Act. This correction of the tax base is considered to be a separate taxable supply, which is carried out on the date of payment of the invoice in question. The seller should therefore issue a tax adjustment document in the amount of the discount. This is most often 2-5% of the total price. For foreign invoices, the same currency conversion rate as used for the original invoice must be used.

Since this is a reduction in the purchase price from the original invoice, this corrective tax invoice must be posted with a minus on the same side of the accounts where the original invoice was posted. The Czech taxpayer will also account for the subsequent reduction in VAT and input tax – known as reverse charge regime – by making a minus posting of the calculated reduction in VAT, applying the exchange rate of the original invoice.

As this is a separate taxable supply, there is no obligation to file an additional VAT return. The corrective invoice, including the VAT reduction, is accounted for on the date of payment and therefore falls within the next tax period.

Value Added Tax Act

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