Company liquidation - how to avoid VAT on liquidation inventory

Service-Tax

The liquidation of the company carries with it specific consequences, both strictly formal and tax. The entrepreneur must remember to submit the appropriate CEIDG-1 form to the commune office, taking into account the statutory 7-day deadline for updating the data in the database. Active VAT taxpayers must also provide the tax office with a VAT-Z declaration notifying that they have ceased to perform taxable activities, but they must also not forget that closing a business is primarily an obligation to prepare a liquidation inventory. Are you liquidating your company? See how to avoid VAT on liquidation inventory.

Liquidation inventory for VAT purposes

When closing a business, an active VAT payer has to face the obligation to prepare a liquidation inventory. This is what Art. 14 sec. 5 of the VAT Act. Art. 14 sec. 5(...) taxpayers are obliged to prepare a physical inventory of goods as of the date of dissolution of the company or cessation of taxable activities, hereinafter referred to as the "physical inventory". Taxpayers are required to attach information about the physical inventory made, the value determined on its basis and the amount of tax due, to the tax return submitted for the period including the date of dissolution of the company or cessation of taxable activities. The inventory includes purchases for which the right to deduct VAT was possible, even if the entrepreneur simply did not exercise this right. Created for the purposes of the tax on goods and services, the Inventory will cover:

  • commercial goods and supplies as well
  • equipment and
  • fixed assets.

For the purpose of the liquidation inventory, both fully and partially depreciated assets are valued. The valuation of fixed assets and equipment is made according to market prices on the date of the inventory. However, the value of goods and materials is determined according to the purchase price (net amount).

Valued in this way, assets remaining in the company on the date of liquidation are subject to taxation. The date on which the tax obligation arises is the date on which the activities subject to taxation are ceased, i.e. in this case the date of termination of business activity. The last settlement declaration (VAT-7 or VAT-7K) should show the value of the tax on goods and services resulting from the inventory prepared for VAT purposes. In addition, the declaration should be accompanied by information about the inventory carried out along with the determined tax value - the amount of tax due. The obligation to attach information about the liquidation list also applies to entrepreneurs who sold all their property and commercial goods before closing their business.

Company liquidation and the need to pay VAT

No goods remaining in the company on the date of liquidation means no need to show items in the inventory, and thus no need to pay tax. Therefore, in order to bypass the unpleasant duty of taxing the goods remaining in the company before liquidation of the business, it would be necessary to sell the goods. Seemingly, there is no difference - there is also a tax obligation on account of the sale. However, by receiving the payment for the goods, the entrepreneur obtains funds to cover the VAT due on the sale. Additionally, there are no problems with storing unsold goods. Importantly, when closing a business, the taxpayer has the right to set a price for the sold goods lower than the price at which the goods were purchased, which in an everyday situation could be questioned by the tax authorities. However, due to the circumstances of the liquidation of the business, the price reduction should not be questioned.

As for fixed assets, steps can also be taken for resale. VAT is then calculated on the price for which the property was sold. So, taking into account the consumption, it will certainly be a lower price than it was when you bought it.

Another option is to donate assets for personal purposes. Since changes in the VAT Act have been introduced, limiting the possibility of taking advantage of the tax exemption for second-hand goods, it is irrelevant whether the entrepreneur will hand over the goods for his own needs or show it in the liquidation inventory. And so it will use the same method of valuation.

An entrepreneur who sells all the company's assets - i.e. equipment, fixed assets, as well as commercial goods or materials - shows the inventory value as "zero" and thus is not obliged to collect the tax.