This is the last part of the three series article about what a valid tax invoice is where, we shall examine whether the tax invoice must be in your names? What if you fail to get a VAT invoice? Self invoicing and the danger of self invoicing and whether you can claim VAT on self- invoices.

A tax invoice is supposed to show the person to whom the goods or services are supplied. So, if an invoice is not in your name, it usually means that the supply was not to you. In principle therefore, you should not recover VAT on invoices in the name of third parties. RRA will sometimes allow this in circumstances in which they are sure that there was a supply made to the person claiming the input VAT and that that VAT has not already been claimed by the party to which the invoice was addressed- but these are exceptional cases.

However, it is far better to obtain an invoice in the right name in the first place. The one common exception to that requirement is expenses incurred by employees. Whilst it is always a good idea to obtain an invoice addressed to the employer if possible for, say, travel and hotel accommodation, naturally, the travel and accommodation must be on business, and must not be entertainment as defined by the VAT laws.

When part of an expense, such as business calls on a private telephone bill, is paid by an employer, RRA will allow recovery of the appropriate proportion - normally 40%- of VAT provided, of course, that you obtain a copy of the bill in question.

What if you fail to get a tax invoice? RRA is very likely to disallow input tax for which a VAT invoice is missing. Usually, the solution is to ask the supplier for one or for a copy if the original has been lost and, for routine transactions, RRA is likely to insist on this.

The extent to which your business is at risk for failure to obtain tax invoices must depend upon how many suppliers it has, whether it deals with relatively few of them frequently or infrequently, with a large number of different ones and so on.

Self-billing is the system under which the customer produces the supplier’s tax invoice, though the latter remains liable for the output tax. It is used in such circumstances as construction sites where the site staff employed by the main contractor are better equipped to produce tax invoices than the subcontractors working on site.

The pitfall of self-billing is that, if you, the customer, do not do it properly, RRA may either disallow the input tax, which you have invoiced to yourself from your supplier or may demand from you extra VAT if the value was too low. Moreover, your supplier must accept your document and must not issue an ordinary tax invoice.

This is a system under which a taxable person produces a tax invoice for consumption of goods or services ordinary supplied by him (own consumption).

Some companies have constantly ignored raising invoices (self invoicing) when goods are taken from stock for own use. The RRA audit approach of reconciling purchases, closing inventory and sales turnover has always detected this missing link. It is advisable that whenever goods are taken for own use, an invoice should be raised in your own names.

Can you claim input tax on the self –invoices? Ideally, this will depend on the use of the supply. For example if a company manufacturing cement or importing tiles takes cement or tiles from stores to construct a an extension of its office building; the company should be able to claim the input tax on the self invoices.

Therefore the VAT charged on the self-invoice should be treated as both output tax and input tax and accounted for in the VAT return. However where a person eats food from his restaurant, he cannot claim input VAT.

This could be considered as either expense not incurred for business purposes or blocked on grounds that it is entertainment.

However I must caution that RRA could argue that the VAT on the self-invoice is only treated as output tax, as if it was an ordinary sale and therefore no corresponding input tax should be claimed. This would be grossly unfair, and is not explicitly set out in the VAT law. I find no legal support for this view, but resistance to this approach can be anticipated

Can you recover VAT shown on an invoice from a supplier in another county? No. RRA cannot be expected to allow you to recover, say, Kenyan VAT at a rate different to our own when they have not collected the output tax from the Kenyan supplier.

The author is a Tax Manager, PwC Rwanda
frobisher.mugambwa@.rw.pwc.com