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The Use of VAT Credit and Debit Notes

Under the Value Added Tax 2010 for the purpose of credit mechanism a VAT invoice must be issued at all times by VAT registered businesses for any business to business transactions. There are many reasons whereby after an invoice has been issued, an adjustment has to be made to the initial price. These adjustments must be accounted for on the VAT return for the particular VAT period in which the increase or decrease has occurred. For that reason a VAT credit or VAT debit note is issued to indicate that an adjustment has been done to reflect the changes in the initial price.

Circumstances where a VAT credit or VAT debit note must be issued
A VAT credit or VAT debit note is used for the purpose of making an adjustment in relation to the VAT invoices. After the transaction has taken place, the VAT Act 2010 requires that either a VAT credit or VAT debit note be issued when the following happen rather than correcting the initial invoice:
  • Supply of goods or service is cancelled or goods are returned to the supplier
  • An incorrect price was charged on the tax invoice
  • A discount is granted to the purchaser
  • The nature of the goods or services changed resulting in a change in the transaction
  • Mistakes on the amount on the invoices
When to use a debit note and when to use a credit note
When a VAT credit note is issued

When a VAT debit note is issued

When the VAT charged on the invoice exceeds the VAT that is supposed to be charged after the price is reduced whereby the transaction has been partially cancelled or a reduction has been granted.

When additional VAT needs to be charged because the price has increased the VAT charged on the invoice is less than the VAT that is supposed to be charged.



How to account for VAT Credit and VAT Debit Notes?
If an adjustment has been made for a VAT credit or a VAT debit note, it is therefore very important that the appropriate changes are done to all specific or related records when changes are made to a transaction. There must be adequate and specific information on the VAT debit or VAT credit note to be able to identify the VAT invoice that it relates to namely:
  • The words debit note or credit note must appear in a prominent place
  • The name, address, and TIN number of the supplier
  • The name, address and TIN number of the recipient (purchaser)
  • The VAT Invoice serial number
  • Date on which the VAT debit or VAT credit note was issued
  • The value of supply on the invoice, the correct amount of the transaction, the difference between the two amounts and the VAT charged on the differences
  • Brief explanation of the reason for issuing the debit or credit note
The VAT registered business that issues a VAT credit or VAT debit note has to reflect such adjustment by reducing or increasing the output tax reported on its next VAT return. Likewise a VAT registered business that receives a VAT credit or VAT debit note has to reflect such adjustment by reducing or increasing the input tax credit reported on its next VAT return.

It is important to note that a VAT registered business as a recipient has a maximum of 60 days to obtain a VAT credit or VAT debit notes from the supplier from the date of the event. If a registered business makes a request for a VAT credit or VAT debit note to a supplier, then the supplier must comply with the request within 14 days after receiving it.

For more information
You can contact Seychelles Revenue Commission on 4293737 or email us at advisory.center@src.gov.sc. The Value Added Tax Act, 2010 is available here.

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