The enterprise has the right to demand payment of interest on late payment if the obligor fails to pay the goods/services
Legal grounds:
- Circular No. 219/2013/TT-BTC.
We get the following questions:
Hello lawyer, I work as an accountant for a company. My company has a customer who has been late for payment for 2 months. According to the contract, customers have to pay extra interest due to their breach of payment obligations. I want to ask if my company has to issue an invoice for this interest? and how to pay VAT and CIT?
In commercial contracts, parties can agree on one party’s liability to pay interest due to a breach of payment obligation. In fact, when wanting to exercise the right to request interest rate for late payment, the obligee should give advance notice to the obligee about the calculation of interest, clearly stating the principal amount, interest calculation period, interest rate and profit calculation method.
Based on the notice requesting interest payment, the parties make the payment of interest without having to issue a financial invoice, without having to declare and pay VAT.
Specifically, based on Clause 1, Article 5 of Circular No. 219/2013/TT-BTC as follows:
Article 5. Cases not required to declare, calculate and pay VAT
- Organizations and individuals receive compensation in cash (including compensation for land and properties on land when land is recovered under a decision of a competent State agency), bonuses, money subsidies, emission rights transfers and other financial revenues.
When a business receives the money received from compensation, bonus, support money, transfer of emission rights and other financial revenues, it shall make receipts according to regulations. For business that spend money, based on the purpose of spending to make money payment vouchers.
In case of compensation with goods or services, the compensation business must issue an invoice and declare, calculate and pay VAT as for the sale of goods and services; compensation-receiving business declares and deducts according to regulations.
In case business receives money from organizations or individuals to perform services for organizations and individuals such as repair, warranty, promotion, advertising, they must declare and pay tax according to regulations.
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Example 13: Enterprise X sells goods to Company Z, the total payment price is 440 million VND. According to the contract, enterprise Z makes deferred payment within 3 months, the deferred interest rate is 1%/month/total payment price of the contract. After 3 months, enterprise X receives from enterprise Z the total payment value of the contract of 440 million dong and the late payment interest of 13.2 million dong (440 million dong x 1% x 3 months). Enterprise X is not required to declare and pay VAT on this amount of VND 13.2 million.
According to the above provisions:
- The compensation due to commercial contract violation will not have to be declared, calculated and pay VAT, so enterprises do not have to issue financial invoices, do not have to pay VAT;
- The party that has to pay interest needs to make payment vouchers;
- The party receiving the money needs to make receipts;
- The parties should enclose a document determining the amount of interest as a basis for spending/receiving.
Regarding CIT: the interest received by one party, is included in other income and is still subject to CIT.
Note: If the parties make compensation with goods or services, the indemnifying party must issue an invoice.
