Invoicing of deposits and VAT: what are the rules to be respected in France?

Invoicing advance payments: what are the legal obligations?

Why do we have to charge a deposit?

Legally, it is not possible to cash a deposit without issuing an invoice. A simple signed quote or a bank transfer is not enough to justify the receipt of a deposit.

Article 289 of the FTCrequires systematic invoicing as soon as a deposit is received.

A company that receives a deposit without drawing up an invoice is exposed to sanctions for non-invoicing. In addition, the customer who has paid the deposit cannot assert his rights to deduct VAT if he does not have a deposit invoice. In the event of deduction of VAT without an advance invoice (simple quotation), the customer is exposed to a questioning of his right to deduct.

Mandatory information on a deposit invoice

An advance invoice must include all the legal information of a standard invoice:

• Invoice date and number.
• Identity of the seller and the buyer (name, address, SIRET).
• Description of the goods or services concerned.
• Amount of the deposit excluding VAT and VAT.
• Applicable VAT rate and amount.
• Possible reference to the quotation number or to the order form.

In addition, it is recommended to refer to the fact that it is a “Deposit Invoice” to avoid any ambiguity.

Final invoice and deposit: When the goods are delivered or the service is carried out, a final invoice is issued by deducting the deposits already invoiced and the VAT already collected.

Exemption of VAT on deposits: what rules should be applied?

Since January 1, 2023, VAT on a deposit is due as soon as it is collected, both for the supply of goods and for the provision of services.

• Before 2023: Only installments on services triggered VAT upon receipt. For supplies of goods, VAT was only due at the time of delivery.
• Since 2023: VAT is due as soon as the deposit is received, regardless of the type of transaction.

Deliveries of goods: is VAT due upon payment?

YES. Since January 1, 2023, VAT becomes due immediately as soon as the deposit is received on a delivery of goods.

Before this reform, VAT was only due at the time of actual delivery. Now, if a business receives a deposit for an order for goods to be delivered later, it must:

• Invoice the deposit with VAT immediately.

Declare and pay VAT on the VAT return for the month concerned.

• Deduct this deposit from the final bill.

Consequence: Stricter management of advance payments is necessary to collect VAT as soon as they are collected.

Services: do the rules remain the same?

YES. For the provision of services, VAT is due as soon as The receipt of the deposit, in accordance with Article 269 of the FTC.

Special case: Option for VAT on debits

A provider can opt for the regime of debits, where VAT is due as soon as the invoice is issued, even if payment is made later.

In this case, VAT is due from invoicing (even without immediate payment).

In practice: The majority of businesses remain under the payment regime.

How do I process a deposit if an order is cancelled?

If the sale or service does not take place and the deposit is repaid, the VAT initially collected must be adjusted and reimbursed to the customer. This results in:

• Issuance of a credit note to neutralize VAT.
• Deduction of VAT on the tax return correspondent.

Attention, on this point, it is necessary to distinguish between installments and deposits which follow a separate VAT regime.

Deposit, deposit and VAT: how to distinguish them?

It is crucial to clearly differentiate a deposit from a deposit, because their tax and legal treatment differs.

• The deposit is a firm and final payment : it engages both parties to execute the transaction. In case of default by the buyer, the seller keeps the deposit. If it is the seller who withdraws, the buyer may demand the execution of the contract or compensation.

VAT: The deposit is subject to VAT as soon as it is collected, whether for the supply of goods or the provision of services.

• The deposit, on the other hand, is a reservation payment with the possibility of cancellation. If the buyer renounces, he loses his deposit; if the seller retracts, he must repay them twice (article 1590 of the Civil Code).

VAT: The deposit is not subject to VAT, unless it is finally charged to the selling price.

Good to know: Always specify in the contract whether it is a deposit or a deposit to avoid a risk of discussion in the event of a tax audit.

Conclusion: how to secure the billing of your deposits?

• Systematically issue an invoice on your deposits (signed quote or bank transfer are not enough).
• Apply VAT upon receipt, whether for a good or a service.

In case of cancellation, issue a credit note in order to regularize the situation.

• Distinguish between down payment and deposit to avoid mistakes.

Do you have questions about the invoicing of deposits and VAT? The experts of Cyplom Avocats support you to optimize the management of your transactions and secure your tax obligations.

Contact us now for a personalized consultation!

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