Sales outside the country and exports - where to settle VAT?

One of the characteristics of VAT is its territorial nature. This means that the tax obligation arises in the country where the VAT Act recognizes the activity as completed. Therefore, problems may arise as to the correct classification and determination of the place of taxation of the supply of goods. So what is sales outside the country and export - in the following article we will compare these two activities.

Export as a taxable activity

However, before we go on to compare sales outside the country with exports of goods, we need to clarify the situations in which we are dealing with both situations.

First, let's deal with the export of goods. Art. 5 sec. 1 point 2 of the VAT Act states directly that the export of goods is subject to taxation with the tax on goods and services.

Additionally, it is worth pointing out that the act provides us with a legal definition of exports. Pursuant to Art. 2 point 8 - the export of goods is understood as the delivery of goods dispatched or transported from the territory of the country outside the territory of the European Union by:

1. the supplier or on his behalf,
2. or a buyer established outside the territory of the country or on its behalf, with the exception of goods exported by the buyer himself for the purpose of equipping or supplying recreational craft and tourist aircraft or other means of transport for private purposes

- if the export of goods outside the territory of the European Union is confirmed by the competent customs authority specified in the customs regulations.

It follows from the definition presented that the key element to consider a given transaction as an export of goods is that the goods being the subject of the delivery should be shipped or transported from the territory of Poland outside the territory of the European Union.

As a consequence, we can only export goods when there is a physical movement of goods from Poland to a country outside the EU. In the case of the sale of goods, which involves transport from Poland to a country outside the EU, it is necessary to recognize the export of goods, which is an activity subject to Polish VAT.

Sales outside the country - VAT rules

The sale of goods made outside the territory of the country has not been mentioned in the catalog of taxable activities specified in art. 5 sec. 1 of the VAT Act.

Additionally, there is no definition of such a transaction in the content of the act. However, it should be remembered that the sale of goods under VAT is classified as a paid delivery of goods pursuant to Art. 7 sec. 1 of the VAT Act.

As we indicated in the introduction, VAT is territorial. As a result, it must be determined which provision relates to the issue of the place of taxation of the sale of goods. Such a regulation is contained in Art. 22 sec. 1 of the VAT Act, where, inter alia, we can read that the place of taxation of the delivery of goods is in the case of:

• goods dispatched or transported by the person delivering them, their buyer or by a third party, the place where the goods are located when shipment or transport to the buyer begins;
• goods not shipped or transported - the place where the goods are at the time of delivery.

Therefore, we are dealing with a provision which stipulates that the place of taxation of the goods transported as a result of the sale is the place where the transport begins. Therefore, if the transport of goods begins in a country other than Poland, then the sale outside the territory of the country is not subject to Polish VAT, but is subject to the provisions of the country of commencement of transport.

As an example confirming the correctness of the above position, the content of the individual interpretation of the Director of KIS of April 26, 2019, No. 0112-KDIL1-3.4012.112.2019.1.AP can be cited:

„Referring to the circumstances presented in the application, it should be stated that the place of delivery of the goods that the Applicant sells to another recipient (company based in Italy) - on the basis of the cited provision of the Act - is the place where the goods are located at the time of commencement of transport, i.e. the territory of Ukraine .

Thus, in the analyzed case, the described supply of goods performed by the Applicant outside the territory of the country is not subject to tax on goods and services in the territory of Poland.”. The sale of goods, the place of commencement of shipment in a country other than Poland, is not subject to Polish VAT.

Sales outside the country and exports - comparison

Moving on to the comparison of the two described activities, it should first of all be noted that Art. 22 sec. 1 of the VAT Act, indicating that the place of taxation of sales is the country in which the goods are located at the time of commencement of their transport or shipment.

The application of the above standard to both factual states means that only exports of goods will be subject to taxation in Poland. We can certainly state that it is incorrect to equate the activities of exporting goods with sales made outside the territory of the Republic of Poland.

Example 1.

A Polish entrepreneur bought goods in Germany, which he transported to his warehouse in Poland. Then, the goods were shipped from Poland to a contractor from Ukraine. In this case, we are dealing with the export of goods that are subject to VAT in the Republic of Poland (with the possibility of applying the 0% VAT rate).

Example 2.

A Polish entrepreneur purchased goods in Germany that were transported directly to a contractor from Ukraine. In this case, the place of commencement of shipment of the goods is Germany. This means that such sales are not subject to taxation in Poland, but in Germany, in accordance with the local VAT regulations. It will be the activity of exporting goods under German law.

Start a free 30-day trial period with no strings attached! The Director of KIS also pointed out similarly in the interpretation of March 18, 2020, No. 0111-KDIB3-3.4012.73.2019.1.JS. The authority indicated that since the goods will be moved directly from the territory of a country other than Poland to a third country, it should be stated that the taxpayer, in connection with such a sale transaction, does not perform any activity subject to VAT in the country. In particular, there are no grounds to recognize the sale as an export of the goods referred to in Art. 2 point 8 of the VAT Act - due to the fact that the goods will not be moved from the territory of Poland.

Therefore, since the paid delivery of goods outside the territory of the country will not be subject to taxation in Poland, the domestic tax rate, including the preferential rate of 0%, will not apply to it. Remember that the sale of goods outside the territory of the country is not an export subject to Polish VAT. Alternatively, it may be an activity that is taxable under the tax laws of the country in which the goods are located at the time of shipment. In this respect, however, one should follow foreign regulations.

Tax on goods and services provides for a wide range of activities, the performance of which is subject to VAT. It mentions, inter alia, export of goods. At the same time, this concept cannot be understood as meaning every sale made to a country outside the EU. It is crucial that the goods are shipped from the territory of Poland. Only in such circumstances can we speak of the export of goods pursuant to Art. 2 point 8 of the VAT Act.