In some countries, instead of VAT (Value Added Tax), there is GST (Goods and Services Tax). Both of these taxes have the same characteristics and differ only in name. Therefore, you can use them interchangeably and treat VAT as a tax on goods and services, while GST as a tax on value-added. It is worth learning more about this tax. This will ensure that the GST invoice will have no secrets from you.
GST invoice – table of contents:
- Do I need to register for GST?
- What is a GST number?
- How does the GST tax work?
- What must a GST invoice contain?
- Why is it important to avoid errors in GST?
Do I need to register for GST?
This tax is not mandatory for everyone. It covers entrepreneurs who have exceeded the revenue limit set by the government of a country. Each country has its limit, so it’s worth checking, especially if you are starting a business in another country. Below you will find examples of the annual limits that apply in different countries:
Of course, nothing is preventing you from registering as a GST payer even with a lower turnover, but in this case, you need to analyze whether this will be beneficial for you. It is best to seek the advice of a tax advisor who has experience in such matters. Admittedly, the decision to voluntarily join the GST is not irreversible, but if you decide to become a GST tax payer, you will have to pay this tax throughout the tax year.
What is a GST number?
This is a type of tax identification number that you must include on your invoices. Depending on the country in which you do business, this number may have a different format.
In some countries, it is created based on your tax number. An example is India, where a GSTIN (Goods and Services Taxpayer Identification Number) is created based on your PAN (Permanent Account Number). It consists of 15 digits and contains additional information, such as a state code or check digit, which is used to verify the validity of this number.
In other countries, the GST number will simply be your tax identification number. This is the case in New Zealand, where an IRD number is used for this purpose. This is an 8 or 9-character number assigned by government agencies to identify your business.
How does the GST tax work?
This is an indirect tax, which means that although consumers are the ultimate payers of this tax, they do not pay the amounts due to the tax office. This task has been imposed on companies, which must add the GST tax to the price of their products and services. They then calculate the tax collected during designated periods and remit it to the tax office. Depending on the company’s turnover and the country’s regulations, these may be the following periods:
Companies that buy goods and services for business purposes can deduct GST tax if they are registered payers of the tax. As a result, they are interested in the net price they have to pay for the goods they buy. It is worth keeping this in mind when submitting bids to such companies.
What must a GST invoice contain?
Such a document is not very different from standard invoices. In addition to the mandatory elements for all invoices, it must also contain the amount of GST tax. It cannot be an aggregate amount on the summary. Each item on the document should have a specific net value and GST tax rate and value.
As a rule, such a document is issued in 2 copies, but you must check local regulations. For example, in India, when selling goods, you need to issue 3 copies of the GST invoice. The original is for the recipient, a copy for the seller, and the third additional copy should be marked as a trifold for the supplier. For sales of services in that country, the standard 2 copies are sufficient.
When issuing a GST invoice, do not forget to include tax numbers – yours and the customer’s. This is necessary for the correct settlement of this tax. Also, check that you have entered the correct tax rate and that it is calculated correctly. The best invoicing apps will do this job for you, as they will not only calculate and summarize the various items on the invoice without error but also provide you with hints on the GST tax rates applicable in each country.
Why is it important to avoid errors in GST?
The most serious mistake is failing to report for GST despite the obligation to do so. If you have exceeded the permissible income limits and failed to report as a GST taxpayer, you will have to pay the outstanding taxes.
By law, you become liable for this tax when you issue a GST invoice that falls outside your country’s limit. Given this, you will have to pay, with interest, the GST tax due on all subsequent invoices, even if you did not include it in the price of the goods and services sold.
Such oversight may also entail the obligation to issue corrective invoices and send them to contractors. If you give a lot of sales documents then you may have a very tedious job waiting for you. The tax authority may also impose an additional penalty on you for failing to register for GST.
All of this makes it necessary to be very careful about whether the sum of invoices issued is still within the revenue limit. Using solutions such as the Free Invoicing App, you can easily check how much you have invoiced in a given year. This way you’ll know if you can enjoy the exemption or if you’re already approaching the limit.
That’s all you need to know about GST invoice.