In the previous articles we focused on starting a business in Czech Republic. The following article is for those who already established a legal business. In it we briefly explain invoicing for beginners. It is very important to issue an invoice correctly and not to forget certain details that are necessary for a proper accounting document to pass a possible tax audit.
The invoice
Both sole proprietor or an LLC usually sell a product or provides a service. Obviously, all the transactions should be documented correctly. Basically we differentiate between an outgoing invoice (document sent by us to the buyer or subscriber) and the incoming invoice (received document from a supplier). There are basic rules that one needs to follow, while issuing an invoice or check when receiving one, that depend firstly on the type of entrepreneur. According to the Czech legislation there are three types of entrepreneurs:
- VAT non-payer
- VAT payer
- An identified person to VAT – special form of entrepreneur doing business with VAT payers in EU
All of them should operate under the general invoice rules which are following:
Invoice as an accounting document must contain:
- Identification of the parties – name and surname or company name, address or business address, ID number. This is obligatory for both parties – receiver and supplier. Ideally your invoice should include information on your registration in Trade license or business registry.
- Verbal and numerical designation of the document – for example “Invoice 202001”.
- Price – in total or in detail (e.g. price per unit and indication of quantity).
- Date of issue of the accounting document – i.e. the date of issue of the invoice.
VAT invoice must also include:
- supplier’s tax identification number, if the customer is also a VAT payer, then their TIN as well (in Czech: DIČ)
- the date of taxable event – in most cases, the date of delivery of the product or service. (Example: you provide services in January, but issue an invoice in February. Your date of taxable event would be 31.01., as it is the time, when services were delivered)
- scope and type of service delivered, or quantity and type of product delivered
- tax base
- tax rate
- amount of tax – the tax amount must always be given in Czech Crowns.
In some cases, the VAT Act allows you to issue a simplified tax document that does not have to include some of the requisites – for example the one from the cash register you receive when shopping for food.
And what about “identified person to VAT”?
Entrepreneurs providing or receiving services to/from EU countries are under certain circumstances obliged to register for VAT. However, they do not become full payers, but so-called identified persons to VAT. Those are subject to the VAT Act – they include most of the VAT payer’s details on the invoice. Nonetheless, they are not stating VAT amount in the invoice – as VAT non-payers they cannot charge it to the customers.
Proforma invoice
Proforma invoice does not represent an actual invoice. It is basically a call for an advance payment from the customer. Such invoices are primarily used for unknown clients, to make sure that the client will really pay at least the part of the provided service. After receiving the deposit to the bank account, an entrepreneur issues an actual invoice. In case of a VAT payer only the final invoice will contain VAT details.
Invoicing software:
Even though you can create an invoice using a simple template in Excel, there are several services that can make this task easier: