Pro forma invoices in practice – rules for issuing them

Pro forma invoice – definition and characteristics of the document

A pro forma invoice is a commercial document used to set out the terms of a planned sale of goods or services. Despite its visual similarity to a VAT invoice, it does not have the status of an accounting or tax document. In practice, it is treated as an offer or confirmation of agreed commercial terms, without giving rise to any tax liability or the need to record it in the accounts.

According to the interpretation of the Director of the National Tax Information Service (0113-KDIPT1-3.4012.807.2023.1.OS of 14 February 2024), labelling a document with the words ‘pro forma’ unequivocally precludes it from being treated as an invoice under the VAT Act. The issue of such a document does not give rise to a tax liability, and the purchaser cannot claim a VAT deduction on the basis of it.

The purpose and use of pro forma invoices in business transactions

A pro forma invoice serves several practical functions in business operations. First and foremost, it provides a precise summary of the terms of a commercial contract, including details regarding the product range, prices, payment terms and settlement methods. This enables both parties to the transaction to clearly establish their obligations before concluding the final sales contract.

This document is particularly useful in commercial negotiations, as a price quotation for the customer, and in situations requiring prepayments or advance payments. In international trade, a pro forma invoice is often essential for completing customs procedures, enabling the necessary authorisations to be obtained and simplifying import and export formalities.

It should be emphasised that a pro forma invoice is not proof of purchase and does not oblige the recipient to make payment. Its acceptance by the customer (e.g. by signing it or making an advance payment) constitutes a declaration of intent to enter into a contract; however, it is only the issue of a VAT invoice that formalises the transaction and gives rise to tax liabilities.

Elements of a pro forma invoice – what should it contain?

Although the regulations do not explicitly prescribe a template for a pro forma invoice, practice suggests that it should contain almost all the details characteristic of a VAT invoice, with a clear indication of ‘pro forma invoice’ or ‘pro forma’. This prevents any misinterpretation by the tax authorities.

• Date and place of issue
• Seller’s and buyer’s details (name, address, tax identification number)
• Pro forma invoice number (using a separate numbering system from VAT invoices)
• Date of supply or completion of the supply of goods or provision of the service (if known)
• Description of goods or services – name, quantity, unit of measurement
• Net unit price, net value
• VAT rate and amount (if applicable)
• Gross value
• Terms of payment – due date and method
• Comments or additional information regarding the transaction

Preparing a pro forma invoice in accordance with the above guidelines enables it to be efficiently converted into a VAT invoice once payment has been made and the transaction has been completed.

When and how should a pro forma invoice be issued?

A pro forma invoice is usually issued during the negotiation stage or before the order is fulfilled, to inform the counterparty of the detailed terms of the transaction. It can be used to:

1. Presenting a commercial offer and obtaining the customer’s acceptance
2. Obtaining an advance payment or prepayment before the goods are delivered or the service is provided
3. Facilitate customs procedures in international trade
4. Reminding the customer of the need to pay or requesting settlement of outstanding amounts

Where payment is received on the basis of a pro forma invoice, the seller is obliged to issue a proper VAT invoice by the 15th day of the month following the month in which the goods were delivered or the service was performed, or in which the full or partial amount due was received. Failure to comply with this obligation may result in adverse tax consequences.

The issuing of pro forma invoices is not covered by the National e-Invoice System (KSeF), as this document is not a VAT invoice. Consequently, businesses may use a variety of tools to generate pro forma invoices, including accounting software, online applications and online banking.

Differences between a pro forma invoice, a VAT invoice and an advance payment invoice

Confusion regarding the distinction between a pro forma invoice and a VAT invoice or an advance invoice is a common source of misunderstanding. Here are the key differences:

• A pro forma invoice is an informative document; it does not form the basis for tax or accounting purposes. It has no tax implications and does not give rise to an obligation to pay VAT. Its issuance is not mandatory, and it is not subject to recording in VAT registers or accounting records.
• A VAT invoice documents the supply of goods or the provision of a service, giving rise to a tax liability. It must contain all the details required by the VAT Act and is subject to recording and tax settlement.
• An advance invoice is issued upon receipt of full or partial payment prior to the supply of goods or the provision of a service. It is an accounting document that gives rise to a tax liability and must be correctly accounted for in respect of VAT and income tax. An advance invoice must include details of the goods or services ordered, as well as a breakdown of the advance payment into net amount, VAT and gross amount.

In practice, a pro forma invoice may serve as an offer or a request for payment, whereas only an advance or final invoice documents the actual course of the transaction and forms the basis for tax settlements.

Practical implications and risks associated with pro forma invoices

The use of pro forma invoices brings benefits, but also requires an awareness of their limitations. As a pro forma invoice is not an accounting document, it cannot be used as the basis for claiming a VAT deduction or recording costs. Consequently, the purchaser cannot account for the expenditure until they have received the correct VAT invoice.

It is essential for the seller to issue a VAT invoice within the statutory time limit after receiving payment on the basis of a pro forma invoice. Failure to fulfil this obligation may result in tax penalties and complications in dealings with the tax office.

Furthermore, incorrectly treating a pro forma invoice as an accounting document or failing to clearly label it as such may lead to misunderstandings and tax audits. It is therefore advisable to use ready-made templates and professional tools for generating pro forma invoices, which ensure correct labelling and the completeness of the data.

In international trade, it is important to remember that a pro forma invoice does not replace an export invoice and does not entitle the issuer to reduced VAT rates or tax exemptions. Goods exported outside the EU must be supported by the relevant accounting documents.

Summary and recommendations for businesses

A pro forma invoice is a tool of great informational and commercial value, which enables the precise definition of transaction terms and safeguards the interests of both parties. Nevertheless, it does not replace a VAT invoice and does not give rise to tax obligations.

Businesses should use pro forma invoices primarily as part of the tendering and negotiation process, and, upon receipt of payment, issue the appropriate VAT invoices or advance invoices in accordance with the regulations. Consistent adherence to these principles minimises the risk of tax irregularities and streamlines accounting procedures.

It is recommended to use dedicated accounting and invoicing systems that enable the generation of pro forma invoices, along with their automatic conversion into VAT invoices once payment has been received. Such solutions support efficient document management and reduce the risk of potential formal errors. We invite you to find out more about what our business incubator has to offer and to resolve most of the challenges involved in running a business – you can always count on our support!