Definition: what is a credit?
In terms of tax law, a credit is an invoice that has the special feature that it is not issued by the service provider, but rather by the recipient of the service. Colloquially, the term is always used when someone receives a payment without having written an invoice for it.
The credit as a special form of invoicing
This type of invoicing is always common when more than two parties contribute to the fulfillment of the order. So if for example
- a designer on behalf of an advertising agency creates a logo for the client of this agency. He can then create an invoice himself or the agency will issue him a credit.
- Craft companies as subcontractors carry out partial services on a large construction site that is managed by another construction company.
- a company transfers the service you have provided to another customer and charges a fee for this. The company will then issue you a credit note and include this amount in the total invoice to the actual customer.
It is crucial that
- the credit is an income that the service provider receives from the service recipient.
- the recipient of the service issues the invoice.
- the credit note shows a positive amount accordingly. This distinguishes them from invoice corrections or reimbursements, which are recorded as negative amounts during the booking process.
That’s what the law says
The fact that the credit is a special form of fully valid invoicing is evident from Section 14 (2) sentence 3 UStG . It says there that an invoice can be issued by a […] service recipient for a delivery or other service provided by the company ”,“ provided this has been agreed in advance
According to HEALTHKNOWING, “An invoice may” “be issued beneficiary from a third party.” Moreover, “in the name and on behalf of the entrepreneur or a” different A credit is therefore present and is legally valid if they
- as a form of settlement was previously agreed between the parties involved.
- has been duly issued by the recipient of the service in his own name or in the name of another customer.
- shows a positive amount and is labeled with the designation “credit” or a comparable designation such as “self-billing”.
It also has the advantage that various benefits – all of which are subject to the same form of taxation – are combined in one amount. If the graphic designer mentioned above has created additional logos for several customers of the advertising agency, the advertising agency can combine the payments with a credit crossed check after consultation.
Types of credit
For a long time the term was not clearly defined. Even today one speaks of commercial or accounting credits and bank credits. However, this means incoming payments or reimbursements that are made on a different basis.
These are then to be distinguished from a credit within the meaning of the law , i.e. from the actual billing credit .
Other types of credits
A commercial credit is always available when an invoice has to be corrected. You will then receive a cancellation invoice or a correction invoice and a reimbursement of the amounts already paid or overpaid.
This can be the case, for example, if you are returning an order or if there is a defect for which you will subsequently receive a price reduction. Sometimes it is simply incorrect invoice amounts that mean that an invoice has to be corrected.
A bank or booking credit, on the other hand, is generally used when booking incoming amounts. Everything that ends up as an incoming payment on the credit side is therefore referred to as a credit – regardless of whether it is received due to an invoice or an invoice correction. The booking or bank credit has nothing in common with the use of the term credit for tax purposes.
Mandatory information for a credit note in accordance with Section 14 (4) of the UStG
From a tax point of view, the credit is an invoice . Therefore, the credit note procedure must contain all mandatory information that the legislator provides for this. This includes:
- Name and address of the company providing the service and the recipient of the service.
- Tax number of the service provider (if available: VAT ID no.).
- Invoice date and unique invoice number.
- Information about the type and scope of the service or delivery.
- Information about the time of delivery or the provision of services.
- special agreements on payment (time) or reduction in remuneration and the amount of tax rates included in the invoice.
- a notice that there is an obligation to keep the invoice / credit note, provided that it contains taxable services.
It is important that the credit is marked as such. The easiest way to do this is to actually select “Credit” as the description. In addition, it must contain the tax number of the service provider. If you receive a credit note, you should definitely check whether the issuer has entered your tax number.
Creation and booking of a credit note
Like every invoice, the credit must also contain certain mandatory information so that it can be recognized by the tax office. Since the creation of invoices and credit notes is one of the routine tasks that recur, it is worthwhile to use an accounting or invoicing program. So you don’t have to add the mandatory information every time and you can be sure that everything essential is included. In contrast to an invoice template , accounting programs are GoBD-compliant.
If you create credits for different service providers, you must of course also make sure that you enter the correct VAT ID .
When does a credit allow input tax deduction?
Does the recipient of your credit charge sales tax for their services or products ? Then of course you have to list them in the credit. You can then claim this as input tax at the tax office – provided you are entitled to input tax deduction yourself.
- 14 para. 2 UStG clearly summarizes the requirements for input tax deduction. So must
- the recipient of the credit may be entitled to show sales tax separately.
- The recipient and the exhibitor must have agreed in advance that the invoice will be issued as a credit note.
- the credit includes all mandatory information.
- the credit note can be proven to have been delivered to the recipient.
Small business owner? Then watch out!
Have you applied to the tax office yourself to be taxed under the small business regulation ? In this case, you are not allowed to accept a credit note showing sales tax.
Therefore, make sure that the credit creator knows in advance that you will not charge sales tax. He can take this into account in the credit and does not have to make any corrections. If he does not stick to it or if he forgets, you have to contradict the credit. Point out that as a small business owner you are not entitled to deduct sales tax under Section 19 UstG .