In the course of business, there are common confusions about the difference between the pro forma invoice, advance payment invoice, and regular invoice.

A pro forma invoice most commonly serves as a request for payment of goods and services that have yet to be delivered. The buyer may, but is not obligated to, make payment as per the pro forma invoice — it’s a non-binding document. As it doesn’t document any changes created, the pro forma invoice is not grounds for any bookkeeping records nor can it be used for calculating VAT obligations.

An advance payment invoice is a category in the Value-Added Tax Law.

Namely, the VAT obligations are created on the day taxable goods and services are transacted or on the day they are paid for if the payment is made before the delivery of said goods and services. Therefore, in addition to any VAT obligations on outgoing invoices, taxpayers are also responsible for VAT on advances paid during the relevant tax period (monthly or quarterly) for which no delivery of goods and services occurs (rather, the goods and services will be delivered in a subsequent tax period).

Value-added tax based on advance payments is calculated in the advance payment invoice. The necessary  components of an advance payment invoice are described in the Value-Added Tax Law. Taxpayers are required to provide an advance payment invoice for each instance of goods and services for which payment was received but delivery was not completed within the relevant tax period. If a taxpayer receives payment for goods and services that are delivered by the end of the month, there is no obligation to issue an advance payment invoice.

When goods and services are delivered, a final invoice is issued. This invoice references the advance payment invoice for which payment was made and VAT was calculated. The VAT paid on the advance payment invoice is deducted from the total VAT in the final invoice.

An invoice is evidence of a transaction of goods and services and it’s issued on the day those are transacted. The invoice should be issued on the day goods are delivered (the day goods are dispatched to the buyer) or on the day services are rendered. The delivery date, which determines the date VAT invoice is due, as well as the necessary components of the invoice, are regulated by the Value-Added Tax Law. An invoice is proof of changes in assets, and as such serves as the basis for bookkeeping records of business entities.