Discounts & VAT Exemptions
This guide covers how to apply discounts to invoice positions and how to properly handle VAT exemptions for different customer types and cross-border scenarios. Understanding these features ensures your invoices remain compliant while accurately reflecting your commercial terms.
This page documents position-level discounts — percentage or fixed-amount reductions on individual line items. For early-payment cash discounts (Skonto) that incentivize faster payment of the entire invoice, see Payment Terms > Early-Payment Discounts.
Types of Discounts
docs101 supports two distinct discount mechanisms:
| Aspect | Position-Level Discounts | Early-Payment Discounts (Skonto) |
|---|---|---|
| Scope | Applied to individual invoice positions | Applied to the entire invoice total |
| Trigger | Manually set when creating the invoice | Automatically calculated from payment term tiers |
| Configuration | Per position via the discount dialog | Per payment term via the Discounts tab |
| Appears on PDF | As a line-item discount in the positions table | As discount lines below the payment terms text |
| Effect on total | Reduces the position net before VAT calculation | Offers a reduced gross amount if paid early |
| Documentation | This page | Payment Terms |
Position-Level Discounts
docs101 supports discounts on individual invoice positions. You can choose between a percentage discount or a fixed amount discount.
Discount Type
When editing an invoice position, select the discount type:
- Percentage (%): The discount is calculated as a percentage of the position's net total (quantity multiplied by unit price).
- Fixed amount: A specific monetary amount is subtracted from the position's net total.
Percentage Discount Example
- Position: Website Design
- Quantity: 5 hours
- Net Price per Unit: 100.00
- Total Net: 5 x 100.00 = 500.00
- Discount: 10%
- Discount Amount (calculated): 500.00 x 10% = 50.00
- Net After Discount: 450.00
Fixed Amount Discount Example
- Position: Website Design
- Quantity: 5 hours
- Net Price per Unit: 100.00
- Total Net: 5 x 100.00 = 500.00
- Discount: 75.00
- Net After Discount: 425.00
Both discount types are applied to the total net amount of the position (quantity multiplied by price per unit), not per unit. This is standard invoicing practice.
To apply a discount:
- Go to the Positions tab of your invoice
- Click the discount icon (tag icon) next to the position you want to discount
- In the discount dialog, select the discount type (percentage or fixed amount)
- Enter the discount value (e.g., 10 for 10%, or 75.00 for a fixed amount)
- Click Save — the discount is applied and visible in the positions table
- VAT is calculated on the discounted amount
VAT Calculation with Discounts
VAT is always calculated on the net price after the discount has been applied:
Complete Example with Discount:
- Title: Design Services
- Quantity: 10
- Unit Price: 50.00
- Subtotal: 500.00
- Discount (10%): -50.00
- Net After Discount: 450.00
- VAT Rate: 19%
- VAT Amount: 450.00 x 19% = 85.50
- Position Total: 535.50
When multiple positions with different discounts and VAT rates are combined, the invoice total is calculated as the sum of all position totals (net after discount plus VAT per position). This ensures tax compliance and accuracy across the entire invoice.
VAT Exemptions
VAT exemptions apply when the supply of goods or services is not subject to VAT. This is common in B2B cross-border EU trade and for certain service categories.
What is VAT Exemption?
A VAT exemption means:
- No VAT is charged to the customer (0% VAT on the position)
- No input VAT recovery (you cannot claim back VAT on costs)
- Must be documented with the correct VAT category code
- Requires compliance with local regulations
You cannot simply exempt a position from VAT without proper legal grounds. Only claim exemptions when the supply genuinely qualifies under applicable tax law.
When to Use VAT Exemptions
Common scenarios for VAT exemptions:
| Scenario | Tax Treatment | Example |
|---|---|---|
| Reverse Charge (B2B EU) | Reverse charge | Invoice to German GmbH in Italy for consulting |
| Intra-Community Supply | Intra-community | Supply to another EU business with valid VAT ID |
| Export Outside EU | Export outside EU | Goods shipped to Switzerland or non-EU country |
| Exempt Service | Exempt | Legal services, financial services, insurance |
| Zero-Rated Supply | Zero-rated | Books, certain food items (country-dependent) |
| Standard Rated | Standard rate | Default for most goods and services |
| Small Business Exemption | Small business | Kleinunternehmerregelung (§ 19 UStG) — auto-assigned |
Configuring Tax Treatments
Each position on your invoice must have a tax treatment assigned. docs101 uses this to determine the correct EN 16931 VAT category code automatically.
Standard Rated (S)
The position is subject to standard VAT rates.
Configuration:
- Open the invoice position
- Select Tax Treatment: Standard rate
- Set VAT Rate to your country's standard rate (e.g., 19% for Germany, 21% for Netherlands)
docs101 automatically sets VAT category code S.
Appearance on Invoice:
- VAT is calculated and shown as a line item
- Included in invoice total
- Customer may be able to recover this VAT (B2B) or not (B2C)
Zero-Rated (Z)
The position is subject to 0% VAT.
Configuration:
- Select Tax Treatment: Zero-rated
- Set VAT Rate to 0%
docs101 automatically sets VAT category code Z.
When to Use:
- Goods and services that your country classifies as zero-rated
- Books, newspapers, certain medical supplies (varies by country)
- Always verify with local tax authorities
Example Invoice Calculation:
- Net: 1,000.00 + VAT (0%): 0.00 = Total: 1,000.00
Exempt (E)
The position is exempt from VAT by law.
Configuration:
- Select Tax Treatment: Exempt
- Set VAT Rate to 0%
docs101 automatically sets VAT category code E.
When to Use:
- Services that are legally exempt (education, healthcare, financial services)
- Must comply with your country's VAT legislation
- Cannot claim input VAT on related costs
Key Difference from Zero-Rated:
- Zero-rated: VAT applies at 0%, can claim input VAT
- Exempt: No VAT system applies, cannot claim input VAT
Reverse Charge (AE)
The customer (not you) is responsible for paying the VAT. Used for cross-border B2B supplies within the EU.
Configuration:
- Select Tax Treatment: Reverse charge
- Set VAT Rate to 0%
- Add a note indicating reverse charge applies
docs101 automatically sets VAT category code AE.
When to Use:
- B2B invoices to another EU business
- Customer has a valid VAT ID in their country
- Service is performed in their country or digital service
Example Scenario:
- Your company (Germany, VAT ID: DE123456789) invoices a customer in Italy (VAT ID: IT987654321)
- Service: Consulting, 10,000.00 net
- VAT Category: Reverse Charge (AE)
- Invoice shows: 10,000.00 net, 0% VAT, 10,000.00 total
- Footer note: "VAT reverse charge applies per EU Article 196"
- Customer records this as input VAT in their country
Before invoicing with reverse charge, verify the customer's VAT ID is valid using the VIES system. docs101 can perform this check automatically in the customer profile.
Intra-Community (K)
Supply to another EU member state for a VAT-registered business.
Configuration:
- Select Tax Treatment: Intra-community
- Set VAT Rate to 0%
- Verify customer has valid EU VAT ID
docs101 automatically sets VAT category code K.
When to Use:
- Supply of goods to registered business in another EU member state
- Customer provides valid VAT ID
- Goods physically shipped to EU member state
Compliance Requirements:
- Document the customer's VAT ID on the invoice
- Keep proof of customer's VAT status
- Report to tax authorities as intra-community supply
Export (G)
Goods or services exported outside the EU, subject to 0% VAT.
Configuration:
- Select Tax Treatment: Export outside EU
- Set VAT Rate to 0%
- Document destination country
docs101 automatically sets VAT category code G.
When to Use:
- Physical goods shipped to non-EU country
- Services performed for customer outside EU (certain conditions)
- Must meet documentary requirements
Documentation Requirements:
- Invoice shows destination country
- Proof of export (shipping documents, customs declaration)
- Keep records for tax compliance
Reverse Charge Detailed Walkthrough
Reverse charge is the most complex VAT scenario. Here is a complete example:
Scenario: German Consultant Invoicing Italian Client
Parties:
- Supplier: You (Germany, VAT ID: DE12345678901)
- Customer: ABC GmbH Italia (Italy, VAT ID: IT98765432101)
Services:
- Business consulting: 40 hours x 150.00/hour = 6,000.00 net
Procedure:
-
Verify Customer VAT ID
- Check VIES system to confirm IT98765432101 is valid
- docs101 provides a VIES check button in the customer setup
-
Create Invoice with Reverse Charge
- Create new invoice to ABC GmbH Italia
- Add position: "Business Consulting", 6,000.00 net
- Set VAT Rate: 0%
- Select Tax Treatment: Reverse charge
-
Invoice Totals:
- Subtotal: 6,000.00
- VAT: 0.00
- Total: 6,000.00
-
Invoice Footer/Notes:
- Add statement: "VAT reverse charge applies. Customer shall account for VAT in their country under Article 196 Directive 2006/112/EC"
-
Send and Archive
- Send invoice to customer
- Maintain copy of VIES validation check
- Keep copy in accounting records for 6-10 years (depending on country)
-
Accounting Treatment (Your Books):
- Record 6,000.00 revenue
- No VAT output recorded
-
Customer's Accounting (Italia):
- Records 6,000.00 purchase cost
- Calculates and records Italian VAT (22% = 1,320.00)
- Can claim input VAT if they use consulting for business
Incorrect use of reverse charge can result in tax penalties. Always verify:
- Customer is a registered business (not consumer)
- Customer has valid VAT ID in their country
- Service qualifies for reverse charge
- Customer is in EU member state
- Documentation is complete and stored
Discount + Exemption Combined
You can combine a discount with a VAT exemption on a single position:
Example: Consulting with Discount and Reverse Charge
- Service: Advisory Services
- Quantity: 20 hours
- Rate: 100.00/hour
- Subtotal: 2,000.00
- Discount (5%): -100.00
- Net: 1,900.00
- VAT Rate: 0%
- Tax Treatment: Reverse charge
- VAT Amount: 0.00
- Position Total: 1,900.00
The discount reduces the taxable base, and then the exemption/reverse charge is applied to the reduced amount.
Testing Your Configuration
Before sending invoices with exemptions or discounts:
- Preview the PDF to confirm positions show correct calculations
- Check Compliance Warnings — docs101 flags potential VAT issues
- Verify Totals — Use a calculator to double-check net, discounts, and VAT
- Review Footer — Ensure exemption/reverse charge is documented with proper legal text
Create the invoice, save it as draft, preview it, then send once you are confident. This prevents sending incorrect invoices.
Best Practices
- Use Percentage Discounts When: Discount is tied to volume or contract terms. Use fixed amount discounts for one-off reductions or negotiated flat discounts
- Document Everything: Keep contracts proving exemption eligibility
- Verify VAT IDs: Use VIES before invoicing with reverse charge
- Consult Tax Advisor: For complex cross-border scenarios, seek professional guidance
- Be Consistent: Use same exemption codes and notes for similar transactions
- Test First: Always preview and check compliance before sending
Reference Links
- VAT Category Codes Reference - Complete code definitions
- Reverse Charge Concept - Deep dive into reverse charge mechanics
- Create & Send Invoice Guide - Invoice creation workflow
- Payment Terms — Early-Payment Discounts (Skonto) - Invoice-level cash discounts for faster payment