Tax on Services
Explains how the Tax on Services model applies tax upon invoicing, keeping tax aligned with delivered services and excluding prepaid credits from tax reduction.
Tax on Services is the recommended tax model.
How it works
No tax is applied to the prepaid invoice.
Tax is applied when the service is invoiced.
Applying prepaid credit does not reduce the tax amount.
Example invoice
Line | Amount | Tax |
|---|---|---|
| Prepayment Installment | $1,200 | |
| Service Usage | $100 | $10 |
| Prepaid Credit Applied | -$100 | |
| Total Tax (10%) | $10 | |
| Total Due | $10 |
Key Rule
Prepaid amounts offset only the service value. They do not offset tax.
Why this model is recommended
Aligns with most tax regulations
Keeps tax tied to actual service delivery
Reduces the risk of double taxation