VAT cash method and the export of goods outside the EU

Service-Tax

The cash method is a special form of VAT settlement, in which the tax obligation is related to the moment of payment of the receivable. Taxpayers carrying out foreign transactions often wonder whether this form of determining the tax obligation is also possible in this case. How does the VAT checkout method affect the export of goods? Answer in this article.

VAT checkout method

In order to analyze the relationship between the export of goods outside the EU and the cash method, please refer to the regulations governing the cash method.

Pursuant to Art. 21 sec. 1 of the VAT Act, a small taxpayer may choose the settlement method, which consists in the fact that the tax obligation with regard to the supplies of goods and services made by him arises:

  • on the date of receipt of all or part of the payment - in the case of delivery of goods or services to the taxpayer referred to in art. 15, registered as an active VAT taxpayer,
  • on the date of receipt of all or part of the payment, no later than the 180th day from the date of delivery of the goods or performance of the service - in the case of delivery of goods or services to an entity other than specified in point 1

- after prior written notification to the head of the tax office by the end of the month preceding the period for which he will apply this method, hereinafter referred to as "by cash method"; receipt of payment in part gives rise to a tax obligation in this part.
Pursuant to Art. 2 point 25 of the VAT Act, a small taxpayer is understood to mean a taxpayer of value added tax:

  • in which the value of sales (including the tax amount) did not exceed the amount expressed in PLN in the previous tax year, corresponding to the equivalent of EUR 1,200,000,
  • running a brokerage company, managing investment funds, managing alternative investment funds, being an agent, commissioner or other person providing services of a similar nature, with the exception of a commission commission - if the amount of commission or other forms of remuneration for the services rendered (including the tax amount) did not exceed the previous in the tax year, an amount expressed in PLN corresponding to the equivalent of EUR 45,000

- and the conversion of amounts expressed in euro is made according to the average euro exchange rate announced by the National Bank of Poland on the first business day of October of the previous tax year, rounded up to PLN 1,000.
An entrepreneur who meets the indicated conditions may voluntarily choose the cash method, which allows him to determine the tax obligation only on the date of receipt of all or part of the payment. It is therefore an exception to the rule as the basic rule is that the tax liability arises when the goods are delivered or the service is performed.

Therefore, the choice of the cash method allows the entrepreneur to avoid the situation of lending to the state budget. By applying the basic principles, the taxpayer is obliged to pay the output tax, regardless of whether it has received remuneration from the contractor for the delivery or service provided. Consequently, the tax due has to be paid from its own funds. The choice of the VAT cash method allows the taxpayer to shift the moment of the tax obligation from the date of delivery or performance of the service to the date of receipt of payment.

Cases where the cash method is not applicable

Analyzing the rest of the provisions, we can see that the cash method is not applicable to every economic transaction. In art. 21 sec. 6 of the VAT Act, it is indicated that the cash method does not apply:

  • the goods are released by the commissioner to the commission agent on the basis of a commission agreement;
  • the transfer of ownership of the goods by order of a public authority or of an entity acting on behalf of such authority in return for compensation;
  • the delivery of goods carried out in the course of execution, referred to in art. 18 of the VAT Act;
  • providing, on the basis of separate provisions, at the request of common, administrative and military courts or the public prosecutor's office, services related to court or preparatory proceedings, with the exception of services to which art. 28b of the VAT Act, constituting the import of services;
  • the provision of tax-exempt services in accordance with Art. 43 sec. 1 points 37-41 of the VAT Act;
  • receiving grants, subsidies and other payments of a similar nature;
  • transfer of vouchers.

Importantly, in the context of the problem analyzed by us, the cash method does not apply to the intra-Community supply of goods and the intra-Community purchase of goods.

The regulations do not mention exports as activities excluded from the cash register method. Is it possible, then, to settle the export of goods using this method?

Cash method only for domestic transactions

Answering the question posed, it should be clarified that although it does not result directly from the wording of the VAT Act, it should be assumed that the cash method applies only to domestic transactions.

First, it should be noted that Art. 21 sec. 1 of the VAT Act stipulates that the cash method may be used in relation to the supplies of goods and services by the taxpayer. Such a structure of the provision allows to recognize that it is a paid delivery and a paid service within the territory of the country.

Secondly, the parts of the provision relating to the status of the buyer are also important. The quoted provision states that the cash method is applicable in the event of a supply of goods or services to the taxpayer referred to in Art. 15, registered as an active VAT taxpayer. Such a taxpayer is a Polish entrepreneur who has registered with the tax office using the VAT-R form. In addition, the cash method also applies to an entity other than an active VAT payer, i.e. in relation to the supply of goods and services to a VAT-exempt taxpayer or to a consumer. The cash method applies only to paid delivery and paid services within the territory of the country. The taxpayer does not use this method for foreign transactions. The VAT Act does not provide for any specific provision as regards determining the moment when the tax obligation arises when exporting goods. This means that general rules will apply, the export of goods outside the EU therefore gives rise to an obligation at the time of delivery of the goods.

Example 1.

The entrepreneur chose to settle VAT using the cash method allowing him to determine the tax obligation on the day of receipt of payment. As part of its activities, it exported goods to Ukraine. The cash method does not apply to foreign transactions, therefore, in terms of export, the taxpayer will recognize the tax obligation on general terms, i.e. on the date of delivery of the goods. Start a free 30-day trial period with no strings attached!

Export of goods outside the EU and the small taxpayer limit

It was indicated at the beginning of the article that the cash-based approach is available to small taxpayers. This status is granted to taxpayers who do not exceed the specified limit. It is about the value of the sale (including the tax amount), which did not exceed the amount expressed in zlotys in the previous tax year, corresponding to the equivalent of EUR 1,200,000.

Pursuant to Art. 2 point 22 of the VAT Act, sale is understood as the paid delivery of goods and the paid services within the territory of the country, the export of goods and the intra-Community supply of goods. The export of goods is thus also covered by the term 'sale'.

Consequently, taxpayers who have the status of a small taxpayer must remember that although the export of goods (as well as intra-Community supply of goods) cannot be settled under the cash method, the value of these transactions is taken into account when calculating the sales limit that allows to maintain the status of a small taxpayer. The value of the export of goods outside the EU and the intra-Community supply of goods within the EU is included in the limit of the small taxpayer who can use the cash method. The consequences of exceeding the limit are specified in Art. 21 sec. 4 of the VAT Act, which states that a small taxpayer loses the right to settle the tax using the cash method, starting from the settlement for the month following the quarter in which he exceeded the limit specified in Art. 2 point 25. For the first month (quarter) following the quarter in which the sales limit was exceeded, the taxpayer is obliged to settle accounts on general terms.

Example 2.

An entrepreneur using the status of a small taxpayer accounts for the cash method. In July, it exported goods to Ukraine, which meant that the limit of EUR 1,200,000 was exceeded. As a consequence, the taxpayer loses the right to the cash-based method and must settle accounts on general terms, starting from October 1 this year.

Summing up, first of all, it should be emphasized that the VAT cash method will not be applicable to the export of goods outside the EU. However, taxpayers must bear in mind that the value of exports is included in the limit of the small taxpayer, which may translate into the loss of the right to use the cash method after exceeding the sales value specified in the provision.