Passenger car sales and VAT
2014 was full of significant changes in the field of value added tax. The most frequently discussed issue is the right to deduct VAT when buying a car or fuel. Meanwhile, the Act on tax on goods and services (Act of March 11, 2004, Journal of Laws of 2011, No. 177, item 1054 - hereinafter: the VAT Act) excludes a large group of movable property purchased by entrepreneurs from the tax exemption. Significant changes have been made to regulate the sale of a used passenger car.
Legal status until the end of 2013
Pursuant to Art. 43 sec. 1 point 2 of the VAT Act in force until the end of 2013, the supply of second-hand goods was exempt from VAT, if the entrepreneur was not entitled to reduce the amount of output VAT by input VAT. At the same time, the provision specified what should be understood as "second-hand goods", ie movable property that was used by the taxpayer for at least 6 months.
This meant that a taxpayer who purchased a car without the right to deduct (i.e., for example, purchasing a vehicle from a natural person or a company exempt from VAT, or bringing it to the company by a natural person) and using it for six months, could benefit from VAT exemption with its sales.
Legal status from January 1, 2014
After the amendment to the VAT Act (including the aforementioned Art. 43 sec.1 point 2) from January this year, the taxpayer is entitled to a VAT exemption for the sale of cars used only in exempt activities, if they were not entitled to deduct input VAT due to their purchase and import.
It should be emphasized that the regulation on the six-month period of use of a vehicle for the application of the exemption upon delivery, i.e. the definition of used goods, has disappeared from the provision. The introduced change is beneficial because it means that a taxpayer who buys a car today with the right to a partial VAT deduction may even sell it on the same day and take advantage of the exemption.
When the VAT exemption cannot be applied
A taxpayer applying a partial deduction will never be able to benefit from the exemption when purchasing a car to be used in a mixed activity. In its case, we are dealing with input VAT, determined on the basis of a proportion.
In the case of cars, the purchase of which there was no input tax at all, and which were used not only for the purposes of exempt economic activity, then the sale of such a car cannot be exempt from VAT.
Therefore, it does not matter whether the taxpayer buys a new or used car - if the purchase is entitled to a full or partial VAT deduction, the 23% VAT rate should be applied to its sale. Also, when the purchase was not entitled to a VAT deduction, but the car was used for taxable activities, its sale directly from the company will be subject to taxation.
However, this can be avoided. The Ministry of Finance suggests that in the case of sale of goods, it will be allowed to alternatively:
- handing over a passenger car for personal purposes and then selling it,
- taxation on the basis of VAT margin.
Alternatives to avoid VAT
The easiest way is to transfer the company's assets to the taxpayer's own needs, and after some time to sell them. Such a procedure allows to avoid the activity referred to in the act as a "supply of goods", which is subject to VAT.
The second alternative proposed by the Ministry of Finance is VAT on the margin. In practice, it consists in taxing with VAT only the difference between the purchase price of the car and the price obtained from the sale. As a rule, the price obtained from the sale of the car is lower than the purchase price, so there is no VAT margin.