On 1 October you invoice a customer € 12,000 for an annual subscription. The money is in your account, but it is not yet € 12,000 of revenue. The law says that income and expenses belong to the year in which they arise, even if the money comes in during another year.
For an IT company this matters for three kinds of agreement: SaaS subscriptions, software licences and implementation projects. Each has its own moment at which it becomes revenue. This article sets the rules from annual reporting, tax and VAT side by side.
In short
- Under Guideline 270, SaaS is a service. You recognise the revenue over the term, and the part for the coming months sits on the balance sheet as a debt to the customer.
- A separate licence for the software as it is, is revenue on delivery. If you have to keep maintaining or improving the software, you recognise the licence over the term. Implementation is recognised in proportion to the work.
- You pay the VAT on the whole invoice in the period of the invoice. For tax, sound business practice applies, and the profit on an assignment in progress counts in proportion to what has already been done.
In this article
- Why is what you invoice not yet revenue?
- How do you account for a SaaS subscription?
- Where does the part invoiced in advance go on the balance sheet?
- When is a licence revenue straight away?
- How do you account for an implementation project?
- What does tax law say about the moment of profit?
- When do you pay the VAT on an annual invoice?
- Why does the moment of revenue matter so much?
Why is what you invoice not yet revenue?
Because revenue belongs to the year in which you do the work, not to the year of the invoice or the payment. The law says that the income and expenses of the financial year go into the annual accounts, regardless of whether they led to receipts or payments in that year (Civil Code Book 2, article 362(5)).
Prudence also applies. You only include profit to the extent that it has been realised at the balance sheet date (Civil Code Book 2, article 384(2)). An annual subscription of which you have delivered only 3 months has therefore been earned for a quarter.
How you work that out exactly is set out in Guideline 270 of the Dutch Accounting Standards Board, on the profit and loss account. That guideline has an appendix with examples for software companies. The quotations below come from the freely available 2021 version (RJ Statement 2020-15, Guideline 270). There are later versions, but their text is not freely available.
How do you account for a SaaS subscription?
Over the term, month by month. Guideline 270 gives the example of a company that provides software as an online service, with payment per month per user. The company hosts the software and handles the updates, the back-ups and the security. The licence and the hosting together form one performance obligation, because the customer gets nothing from one without the other (Guideline 270, appendix, SaaS example).
A performance obligation is a promise to the customer that you account for separately. This one counts as the provision of a service, and the revenue falls in the agreed period in proportion to what you have delivered (Guideline 270, appendix, SaaS example). If the service consists of an unspecified number of acts over a fixed period, you recognise the revenue evenly over that period (Guideline 270, paragraph 120).
In the example of € 12,000 from 1 October, € 3,000 is revenue in 2026, for October, November and December. The other € 9,000 is revenue in 2027. If the customer pays per quarter or per year in advance, that changes nothing. Guideline 270 says that instalments and advance payments usually do not show how much service you have already provided (Guideline 270, paragraph 119).
Where does the part invoiced in advance go on the balance sheet?
Under liabilities. You still have to provide 9 months of service to the customer, and until then the amount is an obligation. The law lists received advance payments on orders separately under liabilities (Civil Code Book 2, article 375(1)(c)). What is not under liabilities can go under accruals and deferred income (Civil Code Book 2, article 364(4)).
So in the books you do not post the invoice of € 12,000 to revenue in one go. You post it to a balance sheet account for revenue invoiced in advance, and every month you move € 1,000 to revenue. Many accounting packages can do this automatically, by spreading each invoice line over its term.
The same applies to a deposit on a project. You can read more about that in Is a customer deposit already revenue, or does it belong on the balance sheet?
When is a licence revenue straight away?
If the customer gets the software as it is at that moment, and you have no significant obligation to maintain or improve it. Then you treat the licence as the sale of a good, so on delivery. If you do have to maintain or improve the software during the term, the licence gives access and you treat it as a service, over the term (Guideline 270, paragraph 125).
That only applies if the licence is a separate performance obligation. Guideline 270 gives the example of a software licence with installation, updates and technical support for two years. The customer can also use the software without the updates and support, and everything is also sold separately. Then there are four separate obligations: the licence is revenue on delivery, the installation in proportion to the work, and the updates and support over the two years (Guideline 270, appendix, example of a software licence with other services).
You then divide the total price over those four parts by their value. If the customer can only use the software with your hosting, the licence is not a separate part. Licence and hosting are then together one service over the term (Guideline 270, appendix, example of software hosting). If you charge per use or per transaction, it is revenue as the customer uses the software (Guideline 270, paragraph 126).
| What you supply | When is it revenue? |
|---|---|
| SaaS: software as an online service with hosting | Over the term, usually evenly per month |
| Licence for the software as it is | On delivery, if it is a separate obligation |
| Licence with a duty to maintain or improve | Over the term of the licence |
| Licence per use or per transaction | As the customer uses the software |
| Implementation or installation as a separate part | In proportion to the work done |
| One-off set-up fee without its own performance | Along with the service the customer pays for |
How do you account for an implementation project?
In proportion to the work you have already done. If you can reliably estimate the outcome of a service, you recognise the revenue in proportion to the work performed (Guideline 270, paragraph 115). You measure progress by the work carried out, by the hours or work as a share of the total, or by the costs incurred against the expected total costs (Guideline 270, paragraph 119).
Is the implementation a separate part or does it belong with the software? It is separate if the customer benefits from it on its own and you can distinguish it from the rest. If the installation significantly modifies the software, software and installation are together one obligation (Guideline 270, paragraph 109). With custom work that you build for one customer, that is often the case.
Take care with a one-off set-up fee, such as onboarding costs with a SaaS subscription. If that set-up fee does not yet give the customer a service of its own, it is an advance on the service still to come. You only recognise the revenue when you provide that service (Guideline 270, paragraph 127). In practice you then spread such a fee along with the subscription.
What does tax law say about the moment of profit?
Profit is determined according to sound business practice, with a consistent method that you do not adjust to the outcome you want (Income Tax Act 2001, article 3.25). For a bv the same rule applies through corporate income tax (Corporate Income Tax Act 1969, article 8(1)).
For an assignment still in progress, such as an implementation, there is a fixed rule. You value the work in progress at the part of the agreed fee that belongs to the work already done, and that also applies to assignments in progress (Income Tax Act 2001, article 3.29b). The profit on the part already completed therefore counts in the year itself, not only on delivery.
For a subscription invoiced in advance there is no separate rule in the law. Sound business practice then determines the moment. A small bv may also use the tax principles in its annual accounts, if it does so for all items and states it in the notes (Civil Code Book 2, article 396(6)). A small bv has, among other things, a turnover of no more than € 15,000,000 (Civil Code Book 2, article 396(1)).
When do you pay the VAT on an annual invoice?
In the period of the invoice, on the whole amount. VAT becomes due when you issue the invoice, and at the latest when you receive the money (VAT Act 1968, article 13). The fact that the revenue in the annual accounts runs over 12 months does not change this.
In the example of € 12,000 on 1 October, at 21% you therefore pay € 2,520 VAT in the return for the fourth quarter, while only € 3,000 of revenue falls in that year. For your cash position an annual invoice at the start of the term is favourable. You receive the money before you earn it. For a business customer in another EU country the VAT is reverse charged, and you then report the service in the period in which you supplied it.
Why does the moment of revenue matter so much?
Because it changes your margin and your profit per year. If your number of subscriptions grows, you invoice more than you may take as revenue. The costs of your developers and your hosting are charged to the year straight away. Your margin then looks worse in a growth year than it really is.
Research among listed companies in the United States showed this. When companies defer revenue but take part of the related costs straight away, it depresses the current margin and improves the margin in the period in which the revenue arrives. Analysts took too little account of this in their forecasts (Prakash & Sinha, 2013).
For a small IT company this means that besides profit you also need to look at the balance of revenue invoiced in advance. That balance shows how much work you have already sold but not yet delivered. A bank or a buyer reading your annual accounts sees that amount as a liability on the balance sheet.
Sources
- Dutch Accounting Standards Board, RJ Statement 2020-15, appendix 2: Guideline 270 The profit and loss account (amended 2021), paragraphs 109, 115, 119, 120, 125, 126 and 127 and the appendix with examples. rjnet.nl
- Civil Code Book 2, articles 362, 364, 375, 384 and 396, version in force from 1 July 2026. wetten.overheid.nl
- Income Tax Act 2001, articles 3.25 and 3.29b, version in force on 31 October 2026. wetten.overheid.nl
- Corporate Income Tax Act 1969, article 8, version in force from 1 January 2026. wetten.overheid.nl
- VAT Act 1968, article 13, version in force from 1 January 2026. wetten.overheid.nl
- Prakash, R. & Sinha, N. (2013). Deferred revenues and the matching of revenues and expenses. Contemporary Accounting Research, 30(2), 517-548. doi.org