Sale of a fixed asset and VAT exemption


As of January 1, 2014, due to changes in the provisions of the VAT Act, the definition of second-hand goods and tax exemption from their sale ceased to apply.

Second-hand goods and their taxation in 2013

In accordance with the outdated provisions of the VAT Act, taxpayers could benefit from tax exemption for the sale of second-hand goods. However, they had to meet the conditions set out in Art. 43 sec. 1 point 2 of the above-mentioned of the legal act, namely: "the supply of second-hand goods is exempt from tax, provided that the supplying party did not have the right to reduce the amount of tax due by the amount of input tax".

What were used goods?

The term "goods" is also defined as "things and their parts, as well as all forms of energy".

According to the former Art. 43 sec. 2 of the VAT Act, second-hand goods were “movables whose period of use by the taxpayer who supplies them is at least six months after acquiring the right to dispose of them as the owner”.

Due to this assumption, the term "goods" was treated not only in the category of commercial goods, but also as fixed assets and company equipment. In relation to the above, let us take an example. The entrepreneur is an active VAT payer. In January 2012, he purchased a car on the basis of a margin VAT invoice, which he entered into the register of fixed assets. From that moment on, the vehicle was used for taxable activities, and in October 2013, the entrepreneur decided to sell it. If the transaction was completed by the end of 2013, due to the fact that he was not entitled to deduct input tax from the purchase of the car, and the car was used for the company's needs for a period longer than 6 months, the entrepreneur was entitled to a VAT exemption - in this case, the issued sales invoice included the "ex" rate.

The above example can be applied to each fixed asset and equipment component. This also applies to situations where the goods were previously treated as private property, provided that, when introducing them to the company's assets, the entrepreneur was not entitled to deduct input tax.

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Sale of a fixed asset - changes related to exemptions in 2014

With reference to Art. 43 sec. 1 point 2 of the Act, the new wording has been in force since 1 January 2014. The amendment stipulates that "the supply of goods used exclusively for the purposes of tax-exempt activities shall be exempt from tax, if the supplying party did not have the right to reduce the amount of input tax by the amount of input tax due to the acquisition, import or production of these goods".

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As can be seen from the above, the tax exemption no longer applies to used equipment, but only used for the purposes of tax-exempt activities. Therefore, Art. 43 sec. 2, concerning the definition of second-hand goods.

If the entrepreneur from the example above decided to sell the car only in 2014, despite the fact that in the past he did not have the right to deduct input tax, he will have to tax the transaction at 23% VAT. The situation would be different if the entrepreneur was only active in the field of VAT-exempt activities, e.g. sale of financial services. In this case, he would be entitled to apply the VAT exemption when selling a company vehicle.

Currently - compared to the legal status from the previous year - the entrepreneur will have to set a price higher than the market price in order not to lose money on the sale of the fixed asset, which may turn out to be a less competitive offer for the buyer.