When should a VAT invoice be issued for long-term services?

Recently, the State Revenue Service (SRS) published a clarification regarding the frequency of tax invoice issuance for long-term services. The question arose in connection with land lease agreements concluded for a period of 12 months or, in some cases, even 60 months. Specifically, it was assessed whether, in a situation where a lease service is provided continuously over a longer period, it is permissible to issue a single invoice for the entire 12-month period.

SRS Conclusions

The SRS concluded that the regulatory acts governing accounting do not specify the frequency of issuing supporting documents (invoices). Neither the Accounting Law nor other regulatory acts governing accounting restrict the possibility of issuing a supporting document for a longer service provision period.

At the same time, the SRS indicated that Article 13 of the Accounting Law, which stipulates the obligation to register external and internal supporting documents as soon as possible, but no later than within 20 days of their receipt, regulates the deadline for registering documents, not the periodicity of their issuance.

However, the frequency of issuing tax invoices is limited by the Value Added Tax Law. Therefore, VAT payers must comply with the requirements specified in the relevant regulation.

VAT Invoice Issuance Period

The SRS states that, according to the VAT Law, a tax invoice must be issued for a specific period, which cannot exceed one month, six months, or one calendar year, depending on the specific type of service and the applicable VAT regime.

Consequently, the issuance of a single tax invoice for a 12-month period is permissible, but only in certain cases and subject to the following conditions:

1. the service is provided by a taxpayer from another European Union Member State or a third country;
2. VAT for the respective services is paid by the recipient of the service in accordance with Articles 88 and 89 of the VAT Law;
3. the service is provided continuously over a longer period exceeding one year.

Such services may include:

1. purchase of tickets for cultural, artistic, sports, scientific, educational, entertainment, or similar events;
2. services related to immovable property, including real estate transaction brokerage and expert services, guest accommodation services, real estate lease services, construction services, construction preparation services (including architectural services), as well as construction coordination and supervision services;
3. other services for which the place of supply is determined in accordance with Article 19, Paragraph one of the VAT Law, i.e., typical B2B services where the place of supply is the location of the service recipient.

However, in cases where the service is provided on a long-term basis, including real estate lease services, but none of the aforementioned exceptions apply, the service provision period may not exceed six months. Accordingly, a tax invoice must be issued at least once every six months in such cases. This means that at least two tax invoices must be issued within a 12-month period.

What happens if this procedure is not followed? Can the right to deduct input tax be denied?

In the situation under consideration, the lease service provider was a Latvian company, so the exceptions allowing tax invoices to be issued less frequently than once every six months did not apply.

This raises a practical question – what consequences may arise if an invoice is nevertheless issued less frequently than stipulated by the VAT regulation? Would the SRS be entitled to deny the invoice recipient the right to deduct input tax in such a situation?

In this regard, it is worth noting that a similar question was recently considered by the Court of Justice of the European Union. Although the specific case concerned supplies of goods within the European Union, not the provision of services, this does not change the essence of the matter. Furthermore, with regard to supplies of goods, the VAT regulation provides for an even stricter requirement – an invoice must be issued no later than the fifteenth day of the month following the month in which the tax became chargeable.

Specifically, the tax administration conducted an audit of a company, during which it found that the company had included invoices for intra-Community acquisitions of goods in its VAT declarations, which had actually occurred more than 3-5 years before the receipt of the respective invoices. Although the delayed issuance of invoices was not the company’s fault, the tax administration considered that the company did not have the right to deduct input tax for goods supplied so long ago. Moreover, the deadline for correcting VAT declarations had also already expired at that specific moment.

However, the Court of Justice of the European Union disagreed with such a formal approach, emphasizing that the right to deduct input tax can be exercised at the moment the taxpayer receives the relevant invoice, even if it is issued late. The Court stated that:

1. the fundamental principle of VAT neutrality requires recognizing the right to deduct input VAT even in cases where the taxpayer has not fulfilled certain formal requirements;
2. the exercise of the right to deduct VAT for intra-Community acquisitions in the tax period in which the taxpayer, acting in good faith, actually received the invoices necessary for exercising this right, is consistent with the VAT Directive and the principle of VAT neutrality. This also applies to cases where the relevant tax period is later than the period in which the acquisitions of goods actually took place. Similarly, this right is retained even if the deadline for correcting VAT declarations has already expired by the time the invoices are received;
3. the right to deduct VAT cannot be denied solely because it was exercised in a later tax period if the taxpayer was objectively unable to exercise this right previously because they did not have the necessary invoices.

Consequently, it cannot be ruled out that such invoices may raise additional questions in SRS practice. However, it follows from the case law of the Court of Justice of the European Union that a good faith recipient of goods or services cannot be denied the right to deduct input tax solely on formal grounds.