VAT on cash basis (TVA la încasare) is a special VAT payment scheme introduced to support small and medium-sized enterprises, helping them better manage their cash flow. Unlike the standard system, where VAT is paid upon issuing the invoice, under the VAT on cash basis scheme, the obligation to pay VAT to the state arises only at the moment the invoice is collected from the client.
Main features of VAT on cash basis:
- You pay VAT to the state only after you collect the money from the client. This way, you no longer advance VAT from your own funds for unpaid invoices.
- You deduct VAT on supplier invoices only after you have paid them. That is, you can deduct the VAT related to purchases only at the moment of actual payment to your suppliers.
- It is applicable to companies with a turnover below the legal threshold (which was 4,500,000 lei in recent years, but must be checked annually).
- You must mention on invoices the note “TVA la încasare” (VAT on cash basis), so that clients know the scheme is being applied.
The VAT on cash basis scheme helps avoid financial blockages, especially for companies that work with long payment terms. However, it requires more careful bookkeeping to track the exact moment of receipts and payments.
Simple example
- You are a company under the VAT on cash basis scheme and you issue an invoice of 10,000 lei + 1,900 lei VAT in July.
- The client pays the invoice only in September.
- You pay VAT to the state in September, not in July.
In conclusion, VAT on cash basis can be a real advantage for businesses, but it also involves strict record-keeping and reporting rules. Always discuss with your accountant to see whether this scheme is suitable for your company.