Service-Tax

Barter - settlement of transactions on the basis of income tax

Nowadays, some entrepreneurs settle transactions with contractors on the basis of a barter agreement, i.e. in a non-monetary form. What is barter and how to make a tax settlement based on a barter agreement? Answer in the article!

What is barter?

Barter is a commercial transaction that involves the exchange of goods or services between contractors in a non-cash form, i.e. without money. A barter transaction can take place in 3 different events:

commodity for commodity;
goods for service;
service for service.

Barter exchange takes place on the basis of a mutual agreement, regulated by the provisions of the Civil Code, in which both parties are both the "seller" and the "buyer". The value of the good or service that is bartered, i.e. issued by one party to the contract, should therefore correspond to the value of the service or good delivered by the other party. Art. 603 of the Civil Code
„By the exchange agreement, each party undertakes to transfer the ownership of the thing to the other party in exchange for the commitment to transfer the ownership of another thingy ". Pursuant to Art. 604 of the Civil Code, when using a barter transaction, the provisions on sale should be properly applied.

This is also confirmed by the Director of the Tax Chamber in Bydgoszcz in the individual ruling of June 19, 2015, ITPB1 / 4511–508 / 15 / AK, in which you can read:

„The barter agreement is a mutual agreement, and the essence of reciprocity is that there is an equivalence, i.e. equivalence, between the parties' services. In other words, the parties to the barter agree on the value of the goods or services and aim for a zero balance sheet.

The goods or services mentioned in the barter contract should have equal value, but not in the literal sense of the market value, but in the sense of the purpose of the contract. A barter contract is an unnamed contract, which by its nature is similar to an exchange contract, and therefore in the case of concluding a barter contract, in practice, the provisions on the exchange contract apply to it, i.e. primarily art. 603 of the Act of 23 April 1964 - Civil Code (Journal of Laws of 2014, item 121, as amended). Further, in accordance with Art. 604 of the Civil Code the provisions on sale shall apply accordingly to the exchange agreement, with each party being both the seller and the buyer”.

Settlement of barter transactions in VAT and PIT

Barter - VAT tax

Barter is subject to VAT, because pursuant to Art. 5 sec. 1 point 1, goods and services tax is subject to the supply of goods for consideration and the provision of services for consideration within the territory of the country. Barter settlement is considered to be a consideration "for consideration", which is subject to tax on goods and services, but is not of a pecuniary nature. The tax base in this case is the value of the goods or services.

Goods and services settled under a barter agreement should be taxed with the VAT rate appropriate for a given product or service, and the invoice documenting the transaction must be entered in the VAT register. If the VAT rates for both goods or services are identical, then the transaction is tax neutral.

On the other hand, it may happen that goods or services subject to exchange are subject to different rates of VAT, e.g. this is the case when goods are exchanged for a service exempt from VAT. In such a situation, the concluded transaction cannot be neutral, and the tax obligation arises with both contractors. Entrepreneurs may, however, settle such a transaction as barter on the basis of a concluded contract.

VAT deduction

In the case of a barter transaction, both parties to the contract are required to show the tax due in a given amount, therefore at the same time taxpayers are entitled to deduct VAT in the same amount.

Barter - income tax

A barter transaction should also be taxed with income tax, because as a rule, the received goods / services are income for the company. The value of the revenue is the value of the service provided, expressed in the price specified in the contract, which must be documented with an invoice.

Therefore, the revenue from the transaction concluded under the barter agreement should be shown on the basis of the invoice issued. At the same time, the received cost invoice from the contractor constitutes a tax cost for the entrepreneur, which may be included in the KPiR.

Barter - how to document a transaction?

A barter transaction is a non-cash transaction that is concluded on the basis of a barter agreement. In the concluded contract, each party is both the buyer and seller of the goods or services.

A barter transaction consisting in a mutual agreement should be included in the kept accounting records by issuing an invoice, because, as a rule, the goods / service provided is the company's income, while the received goods / service generate a cost.

Barter, apart from issuing a sales invoice or a bill for goods or services, should be documented by a written barter agreement between contractors.

The barter agreement should include, inter alia:

parties to the contract;
the subject of the transaction;
the value of the good or service;
deadline for the service or delivery of goods.

Although barter takes a non-cash form, each transaction must be documented with a VAT invoice, which shows the tax rate appropriate for the transaction.

Example 1.

Mr. Jakub is an active VAT taxpayer and runs a company dealing in the production of car care cosmetics. In order to get an advertisement for his products, he will provide influencer Marcin with car care cosmetics. Mr. Marcin will advertise the products on his social network. The value of the goods handed over and the value of the service rendered are equal.

Barter agreement
Mr. Jakub	Influencer Marcin
Car cosmetics - PLN 600 net	Advertising service - PLN 600 net
Transaction settlement value - PLN 0
VAT to be paid - PLN 138	VAT to be paid - PLN 138
VAT to be refunded - PLN 138	VAT to be refunded - PLN 138

As part of this transaction, both parties to the transaction receive a financial advantage in which each party acts as both the supplier and the buyer. In such a situation, there is no exchange of cash for goods or services, and the mutual benefit should be taxed with VAT and PIT.

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Barter - settlement in the wFirma.pl system

A transaction based on a barter agreement in the wFirma.pl system should be settled using the tab REVENUE »SALE» EXHIBITION »INVOICE» PAYMENT METHOD »COMPENSATION. Then, in the DESCRIPTION field, enter the annotation that the transaction has been settled on the basis of a barter agreement.

Similarly, you need to post the cost invoice received from the contractor with whom the barter agreement is concluded. In order to post a cost invoice, go to the EXPENSES »ACCOUNTING» ADD> VAT INVOICE tab / (WITHOUT VAT), where in the displayed window, fill in the required fields in accordance with the document received. In the PAYMENT METHOD field, you must indicate the COMPENSATION.