Is it possible to avoid paying the tax on goods and services on the liquidation inventory?

Service-Tax

The decision to liquidate a business activity entails both official and tax obligations. Closing the business activity is made at the commune office using the CEIDG-1 form. The application must be submitted within 7 days from the permanent cessation of business activity. The date of liquidation of business activity may not be later than the date of submission and signing of the CEIDG-1 document. In the event of liquidation of business activity by an active VAT payer, a VAT-Z declaration (declaration of cessation of taxable activities) must be submitted to the tax office in accordance with art. 96, section 6 of the VAT Act.

Liquidation inventory in VAT

When liquidating a business, it is necessary to prepare a liquidation inventory, it results from the regulations (Article 14 (5) of the Value Added Tax Act). It applies to purchases for which VAT was deductible, even if the taxpayer did not exercise the right to deduct.

Inventory for value added tax purposes must contain:

  • commercial goods and materials,
  • equipment,
  • fixed assets.

When valuing assets, it does not matter whether the fixed assets have already been depreciated, the valuation of assets is made in accordance with the applicable market prices. When it comes to the valuation of goods and materials, their value is the net purchase price (if VAT deduction was allowed). In the case of equipment worth less than PLN 1,500 or fixed assets that are more than 10 years old, it is not necessary to show them in the liquidation inventory.

The liquidation inventory thus valued is subject to taxation, and the tax obligation arises on the date of ceasing to perform taxable activities. When submitting the last VAT-7 or VAT-7K declaration with quarterly settlement, it should be accompanied by information about the inventory made, along with the value and amount of the tax due determined on its basis. The amount of this tax is shown in box 36 of the VAT-7 declaration (version 14). If the entrepreneur sells all assets, goods and materials before the liquidation of the business, he submits, together with the last VAT declaration, information about the zero liquidation inventory.

How to avoid paying VAT on the liquidation inventory

Lack of goods in the physical inventory means no need to pay tax. Therefore, in order to avoid the obligation to pay before the end of business, the goods should be sold. Of course, a tax obligation also arises from the sale, but in this way the entrepreneur will obtain funds to pay it, instead of taking it out of his pocket and staying with the unsold goods. If it is impossible to sell off the entire product, its reduction results in a lower value of the inventory and thus less tax to be paid.

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In the case of fixed assets, steps should also be taken to sell fixed assets. On sale, VAT is calculated on the price for which the equipment was sold. In the liquidation inventory, it is necessary to provide the market value on which the percentage of tax on goods and services is calculated.

The entrepreneur also has the option of transferring fixed assets for personal purposes. Some assets are exempt from taxation when they are withdrawn from fixed assets for own purposes, however, if the exemption cannot be applied, it is a neutral procedure, as the tax base for transferring the property is the same as for the valuation in the liquidation inventory.

If VAT was deducted when purchasing an asset, it is possible to correct the deducted tax and return it to the tax office. However, if the initial value does not exceed PLN 15,000 and the fixed asset has been used in business for over a year, donating it for personal purposes does not result in the obligation to return the deducted tax.

An entrepreneur who sells off all company assets, both permanent. as well as commercial goods or materials, has a zero liquidation inventory and thus does not pay tax on it.