In my practice, I have consulted the preparation of various rental agreements and I have noticed that, due to ignorance or understatement of its significance, an important date is usually missed – the “invisible date”, figuratively speaking.
If the “invisible date” is not clearly defined the date when the rental invoice must be issued cannot be properly determined. An invoice, in general, must be issued within five days from the tax event date.
Yes, but what is the date of the tax event in the case of rental agreements?
According to the Value Added Tax Act (VATA), the rental agreements are considered contracts with continuing performance, which means that each period for which due payment was agreed between the parties is treated as a separate delivery. Thus, the tax event occurs on the date, when the payment for a given period becomes due.
In practice, the above means that rental invoice should be issued each time when the payment becomes due for the respective monthly, quarterly or other period, as specified in the rental agreement. I.e. The “invisible date” is the date when any payment on the rental agreement becomes due or, in other words, this is the initial date of the obligation for payment of the rent for a concrete agreed period.
For example, if under the rental agreement the rental price must be paid monthly till the 15th of the relevant month, but the start date as of which the payment for the said months becomes due (the “invisible” date) is not indicated, no clear criteria on which date exactly the invoice must be issued. However, if the parties agree that the payment becomes due on the 5th day of the relevant month, the correct wording would be “…the rental price is due from 5th to 15th of the respective month”. This clarification will certainly protect the rent agreement from formal tax complication related to whether the invoice was issued within the correct statutory period.