A customer pays a deposit in August, but the goods will be delivered in September. The sales team may treat August as an order and September as revenue, while VAT follows a different trigger. If the advance is missed at month-end, the company can put the tax in the wrong return even though the final invoice total is correct.
In my 15+ years in Estonian accounting, the recurring problem has not been the formula. It has been the hand-off between the bank, sales system and bookkeeping. This guide applies to a VAT-registered seller and an ordinary domestic taxable supply. Cross-border goods, reverse-charge services, special schemes and exempt transactions need their own analysis.
Payment can create the VAT tax point before delivery
Under the Value-Added Tax Act, §§ 11 and 37, the time of supply under the general rule is the first of the relevant events: the goods are dispatched or made available, the service is provided, or full or partial payment is received. That is why a bank receipt on 28 August can create August VAT even when delivery is in September.
A quotation, order confirmation or payment request does not by itself prove that supply has arisen. The control should compare three dates: actual receipt of money, delivery or completion, and the document date. Use the earliest event that is legally relevant, not whichever date is easiest for the sales system.
| Event | VAT effect under the domestic general rule | Evidence |
|---|---|---|
| Payment request sent | No VAT from the request alone | Order or pro forma |
| Partial payment received | VAT on the amount received | Bank receipt and allocation |
| Goods delivered first | VAT on the delivered supply | Dispatch or acceptance record |
| Service completed first | VAT on the completed service | Delivery or acceptance evidence |
Calculate VAT only on the part received
Assume a domestic sale at the 24% standard rate has a total price of EUR 1,240 including VAT. The customer pays EUR 496 in August and the goods are delivered in September. The August advance consists of EUR 400 taxable value and EUR 96 VAT. The remaining EUR 744 consists of EUR 600 taxable value and EUR 144 VAT.
The advance is not treated as the entire sale. In August, record the money received, the advance balance and VAT of EUR 96. At delivery, clear the advance against the final invoice and recognise only the remaining VAT of EUR 144 as new VAT for September. The exact accounting entries depend on the ledger design, but the VAT must not be counted twice.
| Stage | Gross amount | Taxable value | VAT at 24% |
|---|---|---|---|
| August advance | EUR 496 | EUR 400 | EUR 96 |
| September remainder | EUR 744 | EUR 600 | EUR 144 |
| Total contract | EUR 1,240 | EUR 1,000 | EUR 240 |
If the contract contains different VAT rates, allocate the advance to identifiable items rather than applying one blended rate without support. Confirm the current rate with our Estonia VAT rates guide.
Issue the invoice within seven days and close the month
The EMTA guidance on issuing VAT invoices says that when receipt of full or partial payment creates the supply, the invoice must be issued within seven calendar days from receipt. The EMTA list of information required on an invoice also requires the payment date on the invoice when it can be determined and differs from the issue date.
VAT periods are monthly and the EMTA guidance on filing KMD and KMD INF gives the filing deadline as the 20th day of the following month. Do not wait for the final delivery invoice before giving the advance to the accountant. The August bank receipt belongs in the August VAT close even if the commercial project remains open.
- Match incoming bank payments to the customer and contract every week.
- Separate real advances from deposits, loans and unmatched receipts.
- Confirm the applicable VAT rate and the portion of the contract paid.
- Issue the VAT invoice within seven calendar days of receipt.
- Reconcile advance balances, VAT records and issued invoices before KMD.
- Carry the advance reference into the final invoice so it is cleared once.
For the wider filing control, use the guide to VAT reporting mistakes before KMD.
Clear the advance at delivery and review exceptions separately
The final invoice should show the full supply, the advance already invoiced and the remaining amount due. The accounting record must link both documents. If the order is cancelled and the advance is returned, issue a cancellation or credit document that refers to the original invoice and let accounting make the correction in the proper VAT period.
Do not copy this domestic example into every cross-border transaction. Intra-Community goods have a special time-of-supply rule, and services may be taxed where the customer is established. Identify the type and place of supply before deciding whether an advance creates Estonian VAT.
- final invoice agrees to the contract total and applicable rate
- advance invoice is referenced and deducted exactly once
- bank receipt, invoice and ledger use the same customer and currency
- refunds and credit documents are linked to the original transaction
- cross-border treatment is reviewed before the payment is posted
I ask one month-end question: which customer money arrived before we delivered anything? That bank-to-sales reconciliation catches more advance-payment VAT errors than reviewing final invoices weeks later. Give every unmatched receipt an owner and a deadline before KMD is filed.
VAT on an advance is a timing issue before it is a calculation issue. Reconcile incoming money, identify the supply, invoice within seven days and carry the paid amount into the final invoice. That keeps the bank, customer balance and KMD in the same period. Related topic: VAT Registration in Estonia.
If advance payments regularly cross month-end in your business, Accounting Resources can help set up the sales-to-bookkeeping hand-off. Use our contact form before the next VAT close.