Commercial Tax Payment and Offset Timings

The Internal Revenue Department (“IRD”) has issued clarifications regarding Commercial Tax (“CT”) payment and offset timings.

Clarification 2/2018 provides an explanation regarding CT payment timelines. CT charged to customers (“output CT”) is due the earlier of issuing invoice to customers or receiving payments.

For example, if an invoice is issued to a customer in June 2018 and payment from customer is received in July 2018, a CT payment is required to be made to the IRD within 10 days from June month-end.  Alternatively, if the payment is received from the customer as an advance payment in June 2018 and the invoice to the customer is issued only in July 2018, a CT payment is required to be made to the IRD within 10 days from June month-end.

Clarification 3/2018 provides an explanation regarding CT offset timelines. CT paid to suppliers (“input CT”) can be offset against output CT only when the payments have been made to the supplier and not when the invoice is received from supplier.

For example, if an invoice is received from the supplier in June 2018 and payment is made to the supplier in July 2018, input CT for that invoice can be utilized against payable output CT for July 2018.

Therefore, output CT payment is based on an accrual method, whereas utilizing input CT is based on a cash method. Please note that unutilized input CT within the financial year cannot be carried forward to the next financial year. Therefore, payment timing difference can lead to unutilized input CT situations. We have discussed this issue with the IRD; what Clarification 3/2018 intends to explain is that the input CT can be utilized when the CT payment is made to the IRD, not when the payment for services/goods is made to the supplier. Accordingly, we understand that further clarification will be made by the IRD on Clarification 3/2018.

However, for the time being, companies should follow the explanations stated in the Clarifications 2 and 3 regarding CT payment and CT offset timelines.