Proforma Invoice: What It Is, and What It Cannot Do

A proforma invoice is a quote wearing a costume. It states what the goods or services will cost, it looks exactly like the real thing, and it settles nothing.

Buyers ask for one all the time. Customs officers want one before the goods move. Finance departments need one to open a purchase order or release a prepayment. So the document is genuinely useful, and it is also the single easiest way to create a tax liability you did not intend.

The reason is simple and it catches people in every European country. Whether a document is an invoice does not depend on the word printed at the top.

§ 14(1) of the German VAT Act states the rule most clearly of the four systems: an invoice is any document by which a supply of goods or services is settled, regardless of how that document is described in business dealings.

So the test is functional, not nominal. Does the document settle a supply that has happened? Then it is an invoice, whatever the header says. Does it describe a supply that has not happened yet? Then it is not, and it cannot do an invoice's work.

That second point matters more than it sounds. Under § 15(1) of the same Act, the right to deduct input tax requires that the business holds an invoice issued in accordance with §§ 14 and 14a. A proforma is not that document. Your customer cannot deduct against it, and if they try, the deduction is refused on audit.

Spain arrives at the same place through a different door. Article 97 of the VAT Act provides that only holders of the justifying document may exercise the right to deduct, and that the only documents that qualify are the original invoice and a short closed list of alternatives. A delivery note is not on the list. It proves that goods arrived, which is a different and also useful thing.

The mandatory contents are where the systems converge. Germany's § 14(4) lists nine particulars: the full name and address of both parties, the supplier's tax number or VAT identification number, the issue date, a sequential invoice number, the quantity and commercial description, the time of supply, the consideration broken down by rate, the rate applied and the tax amount, or a reference to the exemption. Spain's invoicing regulation requires the same substance and adds an explicit rule on numbering: within each series, invoice numbers must be consecutive.

Here is the part that turns an administrative habit into a bill.

Article 283-3 of the French Tax Code provides that any person who mentions VAT on an invoice is liable for that tax by the mere fact of having invoiced it. Not by the fact of supplying anything. By the fact of writing the number down.

Germany says the same in § 14c(2) UStG: whoever separately states a tax amount in an invoice while not entitled to state it separately owes the amount shown. Paragraph 1 covers the milder case, where the amount stated is simply too high, and the excess is owed as well.

Now put those two rules next to the German definition of an invoice. A proforma that states a VAT amount separately is a document that settles nothing, carries no deduction right for the recipient, and can still make the issuer liable for the tax printed on it. The worst of both.

The fix costs nothing. Show the net amount and state the VAT treatment in words rather than as a separately stated tax amount, or mark the document clearly as a quotation with no separate tax statement. Correcting it afterwards is possible in both systems, and it is paperwork nobody enjoys.

One document in this family is not optional, and it is the one people confuse with the proforma most often.

Article 289 of the French Tax Code requires every taxable person to ensure an invoice is issued for supplies to another taxable person, and paragraph c extends the obligation to advance payments received before the supply takes place. So in France, taking a deposit triggers a real invoice with all the mandatory particulars. Sending a proforma instead does not satisfy the obligation.

Brazil separates the documents further than Europe does. Article 1 of Law 5,474/1968 requires the seller to draw up a fatura for any mercantile sale between parties domiciled in Brazil with a term of at least thirty days. Article 2 then allows a duplicata to be extracted from that fatura to circulate as a commercial instrument, and expressly excludes any other kind of credit instrument for the same purpose. The proforma invoice sits outside all of this, in foreign trade, where it supports import licensing and the exchange contract rather than any tax obligation.

Small amounts get a break in Germany. § 33 of the VAT Implementing Ordinance allows an invoice whose total does not exceed 250 euros to carry just four particulars: the supplier's full name and address, the issue date, the quantity and kind supplied, and the consideration together with the tax in one sum plus the rate applied.

Four habits keep this tidy.

Name the document by what it does. If the work has not happened, call it a quotation or an estimate and keep it out of the invoice number series. Numbering matters: both German and Spanish rules require invoice numbers to run consecutively within a series, and a gap invites a question you would rather not answer.

Keep VAT off anything provisional. State the rate in words, show a net total, and reserve the separately stated tax amount for the real invoice.

Get the proforma accepted in writing. This is the underrated part. A proforma that the buyer signs or confirms is often the clearest evidence of what was agreed, and it usually predates any signed contract. If the buyer later disputes scope or price, that acceptance is the document you want.

Then invoice properly when the work is done, and if payment does not follow, our guide to the formal notice of default covers what turns an overdue invoice into an enforceable claim. If the underlying agreement is the weak link rather than the paperwork, start with how to write a contract.