0% VAT on export: in which month is the VAT paid on raw materials credited, how is the negative difference refunded and what is recorded in the books?

"Zomin Sharbat" LLC sells apple juice concentrate both on the domestic market and abroad. In October the company shipped a large export lot for the first time, and when chief accountant Muattar was filling in the VAT return she saw a strange picture: sales had grown, yet the VAT payable to the budget had fallen, and in the following month the budget ended up owing the company. Let us go through step by step why this happened.

Which documents are prepared?

The zero rate and the right to credit input VAT are confirmed by documents. Documents proving the right to the zero rate are submitted together with the VAT return (Tax Code, the last part of Article 260). For each export lot Muattar collects the following:

In addition, information on border crossing provided by the customs authorities to the tax authorities in real time also serves as a basis for confirming export (part two of Article 261). The list of other documents required depending on the type of activity and the procedure for submitting them are approved by the Cabinet of Ministers (the last part of Article 261); the list of customs clearance documents for the export customs procedure is also set by the Cabinet of Ministers (Customs Code, Article 31).

Are the zero rate and exemption from tax the same thing?

No, and the difference is measured in money. Under Article 258 of the Tax Code, the VAT rate is generally 12 percent, and 0 percent in the cases provided for in Chapter 36. Item 1 of part one of Article 260 applies the zero rate to sales of goods "exported under the export customs procedure" from the territory of Uzbekistan.

The value of the zero rate is that the turnover remains taxable. Item 1 of part one of Article 266 allows input VAT to be credited if the turnover is taxed, including when it is taxed at the zero rate. With an exempt turnover it is the opposite: VAT on goods acquired for such a turnover is not credited (Article 267, item 3 of part one) and is added to the cost of the goods (the last part of Article 267).

The "Zomin Sharbat" export lot: 40 000 dollars, the rate on the shipment day 12 500 soum, i.e. 500 000 000 soum. Apples and packaging for this lot were bought for 300 000 000 soum, input VAT at 12 percent: 36 000 000 soum. Let us compare three situations (for this lot only):

As you can see, for an exporter the zero rate is the most favourable case: there is no VAT on the sale, and the VAT on purchases comes back. Only when it comes back depends on the buyer's money.

When does an exporter credit input VAT?

Part one of Article 266 requires five conditions to be met at the same time:

1. the goods (services) are used in the business and the turnover from selling them is taxable (even if taxed at the zero rate);
2. there is a tax invoice or another document showing the tax amount separately for the goods acquired, and the supplier is registered as a VAT payer;
3. for imported goods, the tax has been paid to the budget;
4. in the cases provided for in Articles 255, 256 and 266¹ of the Code, the tax has been paid to the budget;
5. for export at the zero rate, there is a bank statement showing that the foreign buyer paid for the export goods (this condition does not apply to the cases in part three).

The decisive part for an exporter is part two: VAT on purchases used for export is credited in proportion to the foreign currency received in a bank account in Uzbekistan. If the money arrives partially, the VAT is also credited partially.

The exception is in part three. If the company is included in the category of disciplined taxpayers (there are two criteria here: over the last year foreign currency proceeds arrived on time, and there are no overdue receivables under export contracts), VAT on purchases used for export is credited without waiting for the money to arrive. But this benefit has a condition: if the foreign currency (or part of it) has not arrived even after 180 calendar days from the day the goods were released under the "export" procedure, the VAT credited earlier is written off in full or in the relevant part.

The Code gives no formula for calculating the share when the money arrives partially. So the example below takes only the two extreme cases that follow directly from the law: a month in which no proceeds have arrived yet (no part of the export VAT is credited) and a month in which the proceeds have arrived in full (the export VAT is credited in full). If proceeds arrive partially, clarify the method for calculating the share with the tax authority and set it in the accounting policy.

Example: how does the two-month VAT calculation turn out?

"Zomin Sharbat" is not in the disciplined taxpayer category. Raw materials for the export lot and for domestic sales are bought separately and recorded separately. All amounts are hypothetical.

October result: 30 000 000 − 12 000 000 − 0 = 18 000 000 soum payable to the budget. The 36 000 000 soum of export VAT has not been credited yet and waits on 4410.

November result: 14 400 000 − 10 800 000 − 36 000 000 = −32 400 000 soum. This is a negative difference: the budget owes the company.

If the buyer had transferred part of the money in October, part of the export VAT would have had to be credited in October. How that part is calculated should, as said above, be clarified with the tax authority and written into the accounting policy.

If the company had been in the disciplined category, the entire 36 000 000 soum would have been credited in October:

The two-month total is the same; the difference is only in timing: the disciplined company gets its money back a month earlier. But it carries the risk of the 180-day deadline.

How is the negative difference refunded?

Under part three of Article 272, if the calculated amount is negative, the taxpayer has the right to have it refunded in the manner set out in Article 274. Under Article 274:

Part four lists nine categories to which the accelerated procedure applies; the one directly relevant to an exporter is item 3 above. "Zomin Sharbat" is exporting for the first time, so tax has not been refunded to it before; the example assumes it does not fall into the other categories of part four either. So it applied for a refund under the general procedure, i.e. with the 30-day period.

Before applying for a refund, check once more that the documents in the table at the beginning of the article are complete: they are submitted together with the tax return (the last part of Article 260).

How does all this look in the books?

The foreign-currency receivable is also remeasured. Rates (hypothetical): shipment on 25 October 12 500; month-end on 31 October 12 540; payment day on 24 November 12 490.

For checking, movements on 6410 (for VAT): credit 30 000 000 + 14 400 000 = 44 400 000; debit 12 000 000 + 18 000 000 + 46 800 000 = 76 800 000. At the end of November there is a debit balance of 32 400 000 soum, i.e. the budget's debt. Once the refunded money arrives, the balance falls to zero. If the company chooses not a refund but an offset against future payments, the debit balance is closed by the VAT amounts of the following months (part one of Article 274).

Check 4410 as well: debit 36 000 000 + 12 000 000 + 10 800 000 = 58 800 000; credit 12 000 000 + 46 800 000 = 58 800 000. On 4010, the export part: debit 500 000 000 + 1 600 000 = 501 600 000; credit 499 600 000 + 2 000 000 = 501 600 000. Balance zero: the export VAT was credited in full because the buyer paid in full.

Practical tip

• Do not write uncredited export VAT off to cost. Until the proceeds arrive it stays on 4410; it is credited in the month the money arrives (Tax Code, Article 266, part two).
• Keep a table for each export contract: the contract amount, foreign currency received, VAT credited and VAT pending; with partial proceeds the share is recorded by the method set in the accounting policy (practical tip).
• Record purchases for the export lot separately. If the documents show which purchase was used for export, it is easy to calculate the share and explain it to the tax authority (practical tip).
• Put the bank statement in the contract folder. Without it the condition for crediting export VAT is not met (Article 266, item 5 of part one).
• A company in the disciplined category should put the "day 180" date for each shipment in its calendar: if proceeds are late, the relevant part of the credited VAT is written off (Article 266, part three). Set the accounting entry for this situation in the accounting policy in advance: the NAS No. 21 table has no separate line for it.

This article does not cover customs payments, penalties or reporting forms: check the text of the current legislation for them separately.