Sell your fixed assets later this year - you will lose VAT exemption next year
2014 will be a year of great changes in terms of VAT. The most important of them include the new deadlines for issuing invoices, the emergence of a tax obligation and the repeal of the article defining used goods. The following article is devoted to this last change.
Sale of the fixed asset by the end of 2013
The provisions of the act on tax on goods and services, in force until the end of 2013, allow you to take advantage of the VAT exemption in the case of sale of fixed assets owned by the entrepreneur. This issue is regulated in Art. 43 sec. 1 point 2 of the Act. According to its wording, when a taxpayer supplies second-hand goods for which he was not entitled to a tax deduction, he may apply a VAT exemption. This is one of the prerequisites for exercising this privilege. The second and, in fact, the most important is the fact that a given asset meets the definition of a second-hand product. Such property should be understood as movable property, the period of use of which by the taxpayer who supplies them was at least six months after acquiring the right to dispose of these goods as the owner.
Passenger cars also deserve a lot of attention, and the taxpayer also has the right to apply the VAT exemption, which results from par. 13 sec. 1 point 5 of the Regulation of the Minister of Finance of April 4, 2011 on the implementation of certain provisions of the Act on tax on goods and services. According to its wording, the VAT exemption is applicable to the supply of passenger cars and other motor vehicles by taxpayers who, upon purchasing these cars and vehicles, had the right to reduce the amount of tax due by the amount of input tax in the amount of 50% or 60% of the tax amount:
- specified on the invoice or
- resulting from the customs document or
- due on intra-Community acquisition of goods or
- due on the supply of goods for which the taxpayer is the buyer
- but not more than PLN 5,000 or PLN 6,000, respectively, if these cars and vehicles are second-hand goods within the meaning of Art. 43 sec. 2 of the Act.
Example 1.
An entrepreneur who is an active VAT taxpayer purchased a passenger car on the basis of an invoice and entered it into the fixed assets register in January 2012. When making a purchase, the taxpayer deducted only 60% of VAT (not more than PLN 6,000). In November 2013, he decided to sell it. Will he be able to take advantage of the exemption?
Yes. A car meets the definition of used goods because it has been used for a period longer than 6 months. In addition, the taxpayer exercised the right to a partial deduction of VAT. In such a situation, the entrepreneur may apply the VAT exemption referred to in par. 13 sec. 1 point 5 of the Regulation of the Minister of Finance of 4 April 2011 on the implementation of certain provisions of the Act on tax on goods and services.
Example 2.
An entrepreneur who is an active VAT taxpayer purchased a plotter in January 2012 on the basis of a sale and purchase agreement and entered it into the register of funds. In November 2013, he wants to sell it. Will he be able to take advantage of the exemption?
Yes.First, the plotter meets the definition of a second-hand product because it has been used in business for more than 6 months. Secondly, the purchase was documented with a sale and purchase contract, in which case the taxpayer was not entitled to deduct VAT. To sum up, the entrepreneur may benefit from the exemption because he has met both conditions necessary for its application.
Example 3.
An entrepreneur who is an active VAT taxpayer purchased in December 2011 a production machine based on a margin VAT invoice. In December 2013, he decided to sell it. Will he be able to take advantage of the exemption?
Yes. This machine meets the definition of a second-hand because it has been used in business for more than 6 months. Secondly, the purchase was documented with a VAT invoice, a margin from which the taxpayer was not entitled to deduct VAT. To sum up, the taxpayer may take advantage of the exemption because he has met both conditions necessary for its application.
Sale of a fixed asset since 2014
The provisions of the VAT Act, which will come into force on 1 January 2014, narrow the group of exemptions under Art. 43 sec. 1 point 2 of the Act on tax on goods and services. The provision giving the right to exemption in the case of the sale of second-hand goods has been modified and clearly indicates that this privilege will apply to the supply of goods used exclusively for tax-exempt activities, if the purchasing, importing or manufacturing of these goods did not entitle the person delivering them to reduce the amount of tax due by the amount of input tax.
It is clearly visible that in the new wording of Article 43 para. 1 point 2 of the Act, there is no question of second-hand goods, as is the case in the provisions in force until the end of 2013. Therefore, par. 2 of the same article that defined the concept of second-hand goods.
Entrepreneurs who want to apply the VAT exemption in the case of the sale of company assets, must answer two basic questions:
- was it used only for the purposes of the business activity exempt from VAT?
- Was it not possible to deduct VAT upon its purchase?
If the answer to both is yes, then the taxpayer may take advantage of the VAT exemption for a given transaction.
It is worth emphasizing that it will not matter how long a given good was used by the taxpayer. The exemption can be used by making a sale on the day after the date of purchase, provided that the above two criteria are met.
Example 4.
An entrepreneur who is an active VAT taxpayer purchased a carpentry machine in July 2010 on the basis of a sale and purchase agreement, which he entered into the fixed assets register. In March 2014, he decided to sell it. Will he be able to take advantage of the exemption?
Not. The purchase was documented by a sale and purchase contract which, although not giving the taxpayer the right to deduct VAT, nevertheless the machine was used in a taxable activity. Only one of the two conditions necessary for the application of the exemption is met, therefore the sale must be taxed at the appropriate rate of VAT.
According to the regulations in force until the end of 2013, the entrepreneur could apply a VAT exemption for this transaction.
Example 5.
An entrepreneur who is an active VAT taxpayer purchased in December 2011 a production machine based on a margin VAT invoice. In January 2014, he decided to sell it. Will he be able to take advantage of the exemption?
Not. The entrepreneur will not be able to take advantage of the exemption when selling the machine because it was used in a taxable activity. Only one of the conditions was met - the taxpayer was not entitled to deduct VAT upon purchase. Meeting only one of the two necessary conditions is not sufficient.
According to the regulations in force until the end of 2013, the taxpayer could apply the "tax" rate for this transaction.
Example 6. A taxpayer runs the so-called mixed sale. In 2011, he purchased an asset (fixed asset, equipment) on the basis of a purchase and sale agreement, which was used only as part of an activity exempt from VAT. In January 2014, the entrepreneur decided to sell it. Is the taxpayer eligible for the exemption?
Yes. The entrepreneur did not deduct VAT, because he was not entitled to such a right, so one of the requirements was met. Secondly, the sold asset was used only for the purposes of the activity exempt from VAT. Both conditions giving the taxpayer the right to exempt the transaction from VAT were met.
According to the regulations in force until the end of 2013, the taxpayer could also apply the exemption, because the fixed asset was used in business for a period longer than 6 months and - importantly - the taxpayer did not deduct the input VAT upon its purchase.
Changes in this respect will not be beneficial for taxpayers. Therefore, if an entrepreneur who is an active VAT payer intends to sell fixed assets or company equipment, he should consider whether in his case the sale of assets before the end of 2013 will be more profitable. If they were used for a period longer than 6 months and the taxpayer was not entitled to deduct VAT, then he will be able to take advantage of the exemption in this regard. This is a solution that will allow the entrepreneur to save, as most of these transactions in 2014 would have to be taxed at the standard rate of 23% VAT.
