Working with foreign business partners often raises questions about how to settle VAT correctly. Things get particularly complicated when a sale to a foreign buyer does not involve the goods actually leaving Poland. Such transactions can lead to serious tax consequences if they are not classified and settled correctly.
Determining the correct place of taxation of a supply of goods is crucial for settling VAT properly. Applying the rules incorrectly can mean not only having to correct your returns, but also interest and penalties imposed by the tax authorities. Businesses trading with foreign partners need to know exactly how each type of transaction is classified.
Basic rules on the place of taxation of a supply of goods
The VAT Act (ustawa o podatku od towarów i usług) sets out detailed rules on where a supply of goods is taxed. These rules are the foundation for settling VAT correctly in both domestic and international transactions. Every business trading with foreign partners needs to know them.
Under Article 22(1)(1) of the VAT Act, the place of supply of goods that are dispatched or transported is the place where the goods are located when dispatch or transport to the buyer begins. This rule is fundamental for settling intra-Community supplies of goods
The first rule covers cases where the goods are dispatched or transported by the supplier, the buyer or a third party. In that case the place of taxation is where the goods are located when dispatch or transport begins. This rule is particularly important for intra-Community supplies of goods, where the movement of goods between EU countries is a key element of the classification.
The second fundamental rule, in Article 22(1)(3) of the VAT Act, covers supplies of goods that are neither dispatched nor transported. In such cases the place of taxation is where the goods are located at the time of supply. This rule is crucial for transactions in which the goods are not actually moved.
When the goods are in Poland, the place of taxation will be Poland in both cases, but the way the transaction is settled differs depending on whether the goods are moved. This difference has a significant effect on the amount of VAT due
If the goods are in Poland and are dispatched to another EU country, and the buyer is a VAT taxpayer, this is an intra-Community supply of goods (WDT, wewnątrzwspólnotowa dostawa towarów) under Article 13(1) of the VAT Act. Such a supply is subject to VAT in Poland, but the 0% VAT rate applies, which has a significant effect on how competitive the products are.
If, however, the goods are in Poland and are not dispatched, the transaction qualifies as a supply of goods for consideration within Poland. Such a supply is taxed in Poland at the VAT rate applicable to the goods, which may be 8%, 23% or another rate provided by law.
Conditions for applying the 0% VAT rate to a WDT
Applying the zero VAT rate to an intra-Community supply of goods requires strictly defined legal conditions to be met. Under Article 42(1) of the VAT Act, the taxpayer must meet all of the requirements to benefit from this favourable tax treatment.
Conditions required to apply the 0% rate:
- The buyer has a valid EU VAT identification number
- The taxpayer holds evidence that the goods were exported before the VAT return deadline
- The taxpayer is registered as an EU VAT taxpayer when filing the return
The first condition concerns the buyer’s identification number. The taxpayer must make the supply to a buyer that holds a correct and valid identification number for intra-Community transactions, issued by the buyer’s Member State. The number must contain the two-letter code used for value added tax, and the buyer must have provided it to the taxpayer.
The second condition requires the taxpayer to hold appropriate evidence that the goods were exported before the deadline for filing the tax return for the given settlement period. This evidence must confirm that the goods supplied intra-Community were removed from Poland and delivered to the buyer in a Member State other than Poland
The third condition concerns the taxpayer’s registration. When filing the tax return in which the supply is reported, the taxpayer must be registered as an EU VAT taxpayer. Without this registration the zero VAT rate cannot be applied, even if the other conditions are met. In addition, under Article 42(1a) of the VAT Act, the 0% rate does not apply if the taxpayer has not filed the recapitulative statement (VAT-UE) on time or has filed it with incorrect data, unless the taxpayer has properly explained the failure in writing to the head of the tax office (urząd skarbowy). The same VAT-R form is also filed by exempt businesses – the procedure is covered in registering as a VAT-exempt taxpayer.
Documents confirming the export of goods:
- Transport documents (CMR, rail consignment notes, air waybills)
- Transport invoices issued by the carrier
- Confirmations of receipt of the goods by the foreign buyer
- Commercial correspondence with the buyer, including the buyer’s order
- Other documents clearly confirming that the goods were moved
If you do not have complete documentation confirming the export of goods, you must apply the appropriate VAT rate instead of the zero rate. This can significantly increase your tax burden and require corrections in later periods
Why the movement of goods matters for WDT classification
The key element in recognising an intra-Community supply of goods is the actual movement of the goods to another EU country in connection with the sale. In its judgment of 1 February 2023 (I FSK 1670/18), the NSA (Supreme Administrative Court) stated clearly that the transfer of the right to dispose of goods located in Poland is not an export within the meaning of Article 13(1) of the VAT Act if the goods are not actually moved to a Member State other than Poland.
This ruling is of fundamental importance in business practice because it makes clear that a change of owner alone is not enough for a transaction to be treated as an intra-Community supply of goods. The goods must actually be moved, and the movement must be linked to the sale and take place as part of the same transaction.
The WSA (Voivodeship Administrative Court) in Gliwice clarified these rules further in its judgment of 27 September 2012 (III SA/Gl 1367/12). The court stated that where goods are not moved after they are purchased, the place of supply is where they are located at the time of supply. If the goods leave Poland as goods already owned by a buyer based in another EU country, a necessary condition for treating the supply as intra-Community is not met.
Such a supply must be treated as a domestic supply and taxed at the VAT rate applicable to that supply of goods in Poland. As a result, there are no grounds to correct the domestic supply on the basis of documents later received from the buyer confirming that the goods were subsequently exported
The distinction between moving goods as part of a sale and later transport by the new owner is crucial for tax purposes. In the first case it is an intra-Community supply of goods at 0% VAT; in the second it is a domestic supply taxed at the standard VAT rates.
Practical examples of settling transactions
Looking at specific cases helps to understand how transactions are classified for VAT. Consider Polish company A, which sold goods to German company B. At the time of sale the goods were in Poland, and the sales contract did not cover moving the goods to Germany. Only after buying the goods did the German company transport them to its own warehouse in Germany, on its own initiative.
In this case there is no intra-Community supply of goods, because the transfer of the right to dispose of the goods as owner was not linked to their export to another EU country. The buyer transported the goods to its warehouse on its own, after buying them. This transport was not part of the sale, but a separate activity of the new owner.
As a result, for Polish company A this will be a supply of goods for consideration within Poland, on which VAT must be paid at the applicable rate in Poland. For German company B, moving the goods from Poland will be treated as a non-transactional WDT in Poland and a non-transactional WNT in Germany
Practical example: A Polish manufacturer of agricultural machinery sold a tractor to a German company. The sales contract stated that the goods would be handed over at a warehouse in Poland, and the buyer did not undertake to export them – only a few weeks later, on its own decision, did it take the tractor to Germany. Even though the goods ended up in Germany, the transaction must be settled as a domestic supply with 23% VAT, because moving the goods was not part of the sales contract. If, however, the contract showed that the buyer was collecting the tractor in Poland in order to take it to Germany as part of this transaction, it could be a WDT – Article 13(1) of the VAT Act does not require the seller to organise the transport.
The tax consequences of this classification are significant. The Polish company must apply the standard VAT rate (e.g. 23% for most goods) instead of the 0% rate. This means the price of the goods increases by the VAT, which may affect how competitive the offer is. In addition, if the company initially settled the transaction as a WDT at 0%, it will have to correct its return and pay the tax with interest.
When German company B moves the goods from Poland to Germany, it makes a non-transactional movement of goods. In Poland such a movement is treated as a non-transactional WDT, and in Germany as a non-transactional WNT (intra-Community acquisition of goods). The German company must report these operations correctly in its VAT returns in both countries. Selling through Amazon brings another issue too: Amazon invoices with the wrong VAT rate.
Reverse charge in domestic supplies
In certain situations a Polish buyer of goods may also be subject to special VAT settlement rules. This applies where a foreign company sells goods located in Poland to a Polish taxpayer and has no registered office or fixed establishment in Poland.
Under Article 17(1)(5) of the VAT Act, entities that buy goods are also liable to settle the tax if certain conditions are met together. The first condition concerns the seller: it must be a taxpayer without a registered office or fixed establishment in Poland and, for ordinary goods, not registered for VAT in Poland (Article 96(4) of the VAT Act).
The second condition concerns the buyer: it must be a taxpayer with a registered office or fixed establishment in Poland. When both conditions are met, the reverse charge mechanism applies
The reverse charge mechanism shifts the obligation to account for the tax on the transaction from the seller of the goods to the buyer, who is a VAT taxpayer in Poland. Under Article 17(2) of the VAT Act, in such cases the seller does not account for output VAT – the buyer is fully responsible for settling the VAT.
| Type of transaction | Seller | Buyer | VAT rate | Settlement mechanism |
|---|---|---|---|---|
| WDT with transport | Polish company | EU company | 0% | Standard |
| Domestic supply | Polish company | EU company | 23% | Standard |
| Reverse charge | EU company | Polish company | 23% | Buyer accounts for VAT |
| Standard domestic supply | Polish company | Polish company | 23% | Standard |
Consider German company B, which sells goods located in Poland to Polish company A. The German company has no registered office or fixed establishment in Poland and is not registered for VAT in Poland. Under Article 22(1)(3) of the VAT Act, the place of supply of goods that are not dispatched is Poland.
In this case the reverse charge mechanism applies, which means Polish company A must account for the output VAT. At the same time, under Article 86(2)(4)(b) of the VAT Act, Polish company A may treat the output tax as input tax to be deducted, provided it is an active VAT taxpayer.
Documenting transactions without movement of goods
Proper documentation of transactions in which the goods are not moved is crucial to avoid problems with the tax authorities. The documents must clearly show the nature of the transaction and the circumstances that determined its tax classification.
How to document the transaction:
- Prepare a sales contract that precisely sets out the parties’ obligations
- Issue a VAT invoice (faktura) with a correct description of the transaction and the VAT rate
- Draw up a handover protocol for the goods
- Keep documents confirming where the goods were stored
- Archive correspondence on the organisation of any transport
The basic document is the VAT invoice, which should contain all the elements required by the VAT Act. Pay particular attention to the description of the goods sold and the place of supply. For domestic supplies, state clearly that the goods are located in Poland and are not being moved as part of the sale.
The sales contract should precisely set out the parties’ obligations regarding the transport of the goods. If transport is to be carried out by the buyer after it takes ownership of the goods, the contract should say so explicitly. Such a clause will help to classify the transaction correctly for VAT purposes
Documents confirming that the buyer has taken over the goods are also important. These may be handover protocols, confirmations of receipt or other documents that clearly show when ownership of the goods passed. These documents should be drawn up before any transport of the goods by the buyer.
If the buyer organises the transport of the goods itself after buying them, it is worth keeping documents confirming this. These may be contracts with carriers concluded by the buyer, invoices for transport services issued to the buyer or other documents showing that the transport was organised independently of the sale.
Documents worth keeping:
- VAT invoice with a correct description of the transaction
- Sales contract setting out the parties’ obligations
- Handover protocol for the goods
- Transport documents (if the buyer organises transport)
- Correspondence with the buyer on the organisation of transport
- Documents confirming where the goods were stored
Consequences of misclassifying a transaction
Misclassifying a transaction for VAT purposes can have serious financial and legal consequences. The most common mistake is to treat a domestic supply as an intra-Community supply of goods and apply the 0% VAT rate instead of the appropriate domestic rate.
If the tax authority finds that a transaction was misclassified, the taxpayer must correct its VAT settlement. This means paying the VAT difference between the rate actually applied and the correct rate. For example, if the goods should have been taxed at 23% and the taxpayer applied 0%, it must pay an additional 23% of the value of the goods.
In addition to the VAT itself, the taxpayer must pay late-payment interest from the day the tax should have been paid. Interest is charged at the rate set out in the tax rules and can significantly increase the total financial burden
If the tax authority finds that tax was understated, it may also impose the so-called VAT sanction, i.e. an additional tax liability (Article 112b of the VAT Act). Its amount depends on the circumstances of the case and is, as a rule, up to 30% of the understated tax liability, and up to 20% if the taxpayer files a correction and pays the tax after the audit has ended. No sanction is imposed if the taxpayer filed a corrected return and paid the tax with interest before an audit was started. We prepare VAT returns, VAT-UE statements and their corrections for businesses that use our accounting services.
Misclassification may also affect the right to deduct input VAT. If the taxpayer settled the sale incorrectly, this may have consequences for the related costs and for the input VAT on purchases connected with that transaction.
How to correct the settlement:
- Identify the incorrectly settled transaction
- Calculate the correct amount of VAT
- File a corrected VAT return for the relevant period
- Pay the additional tax liability together with interest
- Update the accounting records and VAT records
Recommendations for businesses
To avoid problems caused by misclassifying transactions, businesses should put appropriate procedures and controls in place. The first step is to become thoroughly familiar with the rules on the place of taxation of supplies of goods and the conditions for applying the 0% VAT rate to intra-Community supplies of goods.
Pay particular attention to the difference between transporting goods as part of a sale and their later movement by the buyer. This distinction is crucial for classifying the transaction correctly and applying the right VAT rate.
Sales contracts should precisely set out the parties’ obligations regarding the transport of the goods and the moment ownership passes. Defining these elements clearly will help classify the transaction correctly for VAT purposes and avoid later disputes with the tax authorities
It is also worth introducing procedures for checking the VAT status of foreign business partners. Checking that the buyer’s VAT number is valid and that the buyer is entitled to take part in intra-Community transactions is essential for applying the 0% VAT rate. You can check this in the VIES system (VAT Information Exchange System) on the European Commission’s website.
The transaction documentation should be complete and clearly show the nature of the operation. It is particularly important to keep documents confirming the movement of the goods and the moment and circumstances in which ownership passed to the buyer.
A company selling industrial machinery to EU countries introduced a procedure requiring every transaction to be checked for its VAT classification. Before issuing an invoice, staff check whether transport of the goods to another EU country is part of the sales contract (regardless of whether the seller or the buyer organises it), or whether the buyer will move the goods only later, on a separate decision. This helps them avoid misclassifying transactions and the related tax consequences.
Regular training for accounting and sales staff on VAT rules is also important. Tax rules change, and administrative court case law introduces new interpretations that may affect how transactions are classified.
Key recommendations:
- Precisely set out the parties’ transport obligations in contracts
- Check the VAT status of foreign business partners in the VIES system
- Keep complete documentation confirming the nature of the transaction
- Train staff regularly on VAT rules
- Introduce control procedures before invoices are issued
- Consult tax advisers when in doubt
