Business liquidation - what are the consequences of VAT?

The liquidation of a business requires checking and preparing documents reflecting the goods, materials and fixed assets owned by the enterprise.

Business liquidation - sometimes you need two nature lists

If the activity was registered as an active VAT payer during the liquidation of the activity, it will make two such lists for the purposes of:

• PIT - list of assets and physical inventory
• VAT - physical inventory

As for the list of assets for PIT purposes, it is prepared after prior notification of the head of the tax office about the liquidation of business activity.

On the other hand, the physical inventory for the purposes of VAT is prepared by the entrepreneur in the case of:

• dissolution of a civil or commercial partnership without legal personality
• cessation by the VAT taxpayer, who is a natural person, from performing activities subject to VAT (obligation to notify the head of the tax office on the VAT-Z form),

• failure to perform by a VAT taxpayer who is a natural person, activities subject to VAT for at least 10 months (except that failure to perform these activities due to the official suspension of business activity is possible and does not require the preparation of a physical inventory and payment of VAT on liquidation )

The physical inventory is not made by persons running a business and benefiting from the VAT exemption.

The physical inventory prepared for VAT purposes includes goods (including commercial goods, materials, waste), equipment and fixed assets, as well as each tangible asset, as well as land and energy, if the taxpayer is entitled to a specific amount / quantity . However, only those goods and assets with respect to which the tax output was entitled by the amount of input tax are shown.

The information about the physical inventory performed and the value and amount of tax due calculated on its basis is attached to the last submitted tax return (monthly VAT-7 or quarterly VAT-7k) covering the date of dissolution of the company or cessation of taxable activities. The amount of tax due resulting from the inventory should be shown on the first page of the declaration under item 36 (Amount of tax due on goods and services included in the physical inventory referred to in Article 14 (5) of the Act). Other information resulting from the census should be provided in writing to the head of the tax office.

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What about fixed assets from which VAT was deducted upon purchase?

The VAT Act treats equipment and fixed assets also as goods. Regardless of how long a given fixed asset was used, if there was a right to deduct VAT upon its purchase, at the time of liquidation of the activity, an active VAT payer must include it in the physical inventory and, consequently, tax it. This taxation therefore means that the taxpayer will have to pay back the VAT deducted in part.

In that case, on what amount is the VAT calculated in the physical inventory prepared on the day of liquidation of the business? The VAT Act states that the tax base is the net purchase price of goods (without tax), and if there is no purchase price, the manufacturing cost, determined at the time of delivery of the goods. This means that the physical inventory should include both fixed assets for which VAT has been partially deducted, as well as fixed assets that have been fully depreciated, and on purchase of which there was a right to deduct VAT. The value of the goods reported is the purchase price adjusted as at the physical inventory count date. So for a fully depreciated fixed asset, we take its present (market) value, and we do not treat it as a zero-value asset.

Sale of goods after liquidation of economic activity

The sale of goods within 12 months from the date of cessation of taxable activities by a natural person is exempt from VAT when it concerns goods included in the physical inventory. The sale of goods from the liquidation of activities does not result in the obligation to pay the tax on civil law transactions on the part of the buyer (exception - purchase of real estate) - art. 2 point 4 of the Act of September 9, 2000 on tax on civil law transactions (PCC).

In this situation, no VAT is paid as the sale is treated as a sale of private property. Therefore, even after 12 months, it will not be subject to VAT (provided that it is not made in the course of business activity). However, after one year, if the market value of the movable goods sold exceeds PLN 1,000, the PCC tax will appear.

The necessity to prepare a list of assets for PIT purposes is different. The taxpayer no longer pays tax on the liquidation inventory. The laws governing the sale of property are also different.

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