Gift invoice from A to Z
Companies often provide goods as gifts to their customers or their representatives to make themselves known, as a commercial gesture, or as a token of appreciation.
What does the tax system provide for in such cases? What type of invoice is appropriate? Yes, 'gifts' are also subject to invoicing. In this article, we will look at the subject of the gift invoice. We will see what it is and in which cases it is applicable, so that we can remove any doubts regarding this topic.
Gift invoice: what is it?
The gift invo ice is a type of invoice that is issued in the case of the free transfer of goods, in the form of gifts, to one's customers or representatives.
Since there is no exchange of money, therefore, the canonical method of drafting and sending invoices does not apply. Gift invoices, in fact, have a special tax status, which is why it is necessary to make a factual distinction between these two types of tax documents.
First of all, gift invoices differ according to the type of products that are rendered: whether related to the business activity or not, or whether they are free samples.
👀 Regulatory reference: Article 2 paragraph 2 no. 4 of Presidential Decree no. 633/72.
Let us see it in detail.
Gift invoice → for business-related products
The gift invoice may refer to goods given free of charge to the customer that are normally intended for sale. The items given, in this case, are considered an integral part of the business activity.
For this reason, they are subject to VAT, which means that they trigger the need to issue an invoice. In the invoice delivered to the customer, the taxable amount must be reversed. At this point, the company has the option of:
- Charge VAT to the customer → invoice with reclaim;
- Not charge the VAT to the customer → invoice without reclaim.
In addition, companies can choose to:
- Issue an invoice for each free gift granted;
- Issue a self-invoice, with the option of issuing a single summary invoice for the entire month;
- Record gifts per VAT rate on a separate medium, i.e. keep a gift register. In it, the gifts granted on a specific day must be entered chronologically, distinguishing them by rate.
Gift invoice without reclaim > VAT not charged to customer
A non-returnable gift invoice is an invoice for which VAT is not charged to the customer.
This is the situation that occurs most frequently: the customer or representative receives a gift from a company without having to pay anything. In this case, it is the entrepreneur who is obliged to issue the invoice and pay the VAT.
☝ The wording to be entered on the invoice for the free supply of the good is as follows: 'free supply Article 2 Presidential Decree 633/72 without obligation to charge VAT Article 18 Presidential Decree 633/72'. On the other hand, if it is an electronic invoice, the application of exemption N2 is required.
→ In the case of gift invoices without recourse, it is possible to opt for a self-bill. It consists of a tax document in which the issuer and the recipient correspond.
Caution! If an electronic invoicing system is used, it will be necessary, after drafting the self-bill, for the entrepreneur to send it to the Interchange System (SdI), taking care to specify that the invoice in question is for the purpose of free gifts.
Gift invoice with reclaim > VAT charged to customer
A reverse charge invoice is an invoice for which VAT is charged to the customer. This means, in essence, that the customer will be required to pay the VAT on the good given to him as a gift.
This is not the most common practice. In fact, normally, the free gift product is given free of charge in its entirety. However, in the event that the company opts to charge the customer VAT, the following wording must be included on the invoice: 'gratuitous supply Article 18 Presidential Decree 633/72 with obligation to reclaim Article 18 Presidential Decree 633/72'.
The taxable amount will be reversed on the invoice, but the total amount of VAT will remain to be paid to the customer.
VAT taxable amount for gift invoices: what is it?
A question arises at this point... What is the taxable amount on which the VAT is to be calculated?
Since we are dealing with gratuitous supplies, we are in a case where only one of the two parties undertakes the supply, which will not be followed by a pecuniary consideration. The reference standard that reveals the nature of the taxable base on which VAT is to be calculated is Article 13 of Presidential Decree 633/1972.
According to that regulatory reference, the VAT taxable base corresponds to the purchase price or, failing that, the cost of the goods at the time the transactions are performed.
Attention! If the company does not exercise the right of recourse: whichever method is used to issue the invoice (invoice without recourse, self-invoice or registration of the transaction in the register), the payment of VAT remains the responsibility of the supplier and will correspond to a non-deductible cost.
Gift invoice → for non-business-related products
Purchase of free goods
An item given as a free gift may also not form part of the business' own activity. In fact, if the item given as a free gift is not normally produced and marketed by the company, i.e. it is an item that is not part of the company's normal business activity, it is not necessarily binding for the issuance of the invoice.
For this reason, when purchasing goods for free distribution, it is worth making a brief calculation of the possible VAT deductible. In fact, if the goods can be categorised as entertainment expenses, the possibility of deducting VAT on them will be closely linked to the cost of the items in question, according to Article 19-bis 1, letter h) of Presidential Decree 633/1972.
In fact, three different cases are distinguished:
- The cost of the object including VAT is less than EUR 50 → in this case no invoice should be issued;
- The cost of the item including VAT is more than EUR 50 AND the VAT was deducted at the time of purchase → in this case it will be taxable, so the invoice must be issued;
- The cost of the item including VAT is more than €50 AND the VAT was not deducted at the time of purchase → in this case it will not be taxable, so no invoice should be issued.
Supply of free goods
Following the purchase of the goods for the free gift, the time comes to transfer them to customers. How is this done?
Even in the case of a gift invoice issued for products not related to the business activity, you can
- Charge VAT to the customer;
- Not charge the customer VAT;
- Issue a gift invoice;
- Issue a self-billing for free gifts.
👀 It is advisable, at the time of delivery, to issue a Bills of Lading (Transport Document) or similar document, in which the reason 'free gifts' is stated and in which the recipient is named in order to prove the actual delivery of the goods. This makes it possible to avoid any kind of dispute by the tax authorities.
Free samples of low value
Free samples are defined as items of low value usually distributed at the checkout on which no VAT is charged and, therefore, no invoice is issued, provided that
- They are actually free of charge;
- Are marked as such (free samples);
- They have a modest value.
👀 Regulatory reference: Article 2 paragraph 3 letter d) of Presidential Decree No 633/72.
In conclusion
Supplies of goods free of charge, usually carried out for entertainment purposes, always constitute taxable supplies if they concern goods whose production or trade is part of the business' own activities.
On the other hand, goods given free of charge that are outside the scope of the business activity are exempt from invoicing if their value does not exceed EUR 50. If this threshold is exceeded, the value is taxable unless VAT is deducted at the time of purchase.
Hoping that you have learnt the necessary information to be able to juggle invoicing for free goods, we invite you to share your opinion with us! Do you have doubts? Do you have any curiosities you'd like to know more about? Share it with us in the comments section below, we will be happy to take your input into consideration!
Article translated from Italian