Sale of licenses abroad to the consumer - VAT settlement

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The subject of sale can be not only goods, but also intangible assets such as licenses. Usually, these issues will concern authors granting licenses for their works. In the article below, we will consider how the sale of licenses to both foreign companies and consumers should be accounted for.

Sales of licenses as a paid service under VAT

According to Art. 8 sec. 1 point 1 of the VAT Act, the provision of services is understood as any service for a natural person, legal person or organizational unit without legal personality, which does not constitute a supply of goods within the meaning of art. 7, including the transfer of rights to intangible assets, regardless of the form in which the legal transaction was made.

It is also worth pointing out that pursuant to Art. 41 sec. 2 of the Copyright and Related Rights Act, the contract for the transfer of economic copyrights or the contract for the use of the work, hereinafter referred to as the license, covers the fields of use explicitly mentioned therein.

However, pursuant to Art. 67 sec. 1 above of the Act, the creator may authorize the use of the work in the fields of use specified in the contract, specifying the scope, place and time of such use.

Consequently, the granting of a license is a type of ordinance held by the copyright creator. This, in turn, means that, under VAT, the granting of a license to an intangible asset constitutes the provision of services for consideration.

Pursuant to the VAT Act, the paid license is a taxable activity in the form of paid services.

Determining where the licensing service is to be provided

When dealing with services, it is necessary to determine the place of supply. The correct determination of this circumstance influences the determination of the country of taxation of the service.

Remember that VAT is a territorial tax liability, which means that the country of the service provider's seat will not always be the place of taxation. Specific tax regulations may regulate this issue in a different way.

The first step in determining the principles of taxation of the service provided by the taxpayer is to determine the place of supply. Importantly, it will vary depending on whether the recipient is a consumer or a company.

Sale of licenses to a foreign company

If a taxpayer from Poland sells a license for a consideration to another entrepreneur, then Art. 28b of the VAT Act.

According to this provision, the place of supply of services in the case of provision of services to a taxpayer is the place where the taxpayer who is the recipient of the service has his registered office.

As a result, this type of service is not subject to taxation in Poland, but on the basis of a reverse charge - in the country of the recipient, i.e. the licensee. He settles the tax due for the purchased service in his country.

In this case, the taxpayer from Poland is obliged to issue an invoice without the amount and without the VAT rate. Additionally, such an invoice should contain the annotation "reverse charge".

By the way, it is also worth adding that in the case of taxpayers who are subjectively exempt from VAT, up to the sales limit specified in Art. 113 paragraph. 1 of the VAT Act, the value of services to which Art. 28b of the VAT Act.

The sale of a license to an entrepreneur from another country (both from the EU and from outside) is subject to taxation in the country of the recipient. In this case, the principle of the reverse charge applies. The correct application of the rules governing the place of supply of services depends essentially on the taxable status of the customer.

Sale of licenses to an EU consumer

If the buyer of the service is a consumer domiciled in the EU, then Art. 28c paragraph. 1 of the VAT Act. This provision indicates that the place of supply of services to non-taxable entities is the place where the service provider has his registered office.

As a result, in this case, the place of taxation is the territory of Poland, and the sale of licenses is treated as the provision of services against payment in the territory of the country with all its consequences.

First of all, the VAT due on this type of service must be paid in Poland. Moreover, the value of such sales is included in the limit specified in Art. 113 paragraph. 1 of the VAT Act.

It is also worth remembering that due to the fact that there is a paid service in the territory of the country, it is possible to have a cash register and to record the turnover at the cash register.

If a Polish taxpayer sells a license to an EU consumer, it is a paid service that is taxable in the country. The VAT tax on the sale of the license must be paid in Poland.

Sale of licenses to a non-EU consumer

The situation is completely different when the license is sold to a consumer who resides in a third country, i.e. outside the EU.

Pursuant to Art. 28l point 1 of the VAT Act in the case of providing services to non-taxable entities with their registered office, permanent residence or habitual residence outside the territory of the European Union, services for the sale of rights or the granting of licenses and sub-licenses, transfer or assignment of copyrights, patents, rights to trademarks , trade, putting into use of a collective trade mark or a collective guarantee mark or other related rights, the place of supply of services is the place where they are established, have their permanent address or usually reside.

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As a result, in such a case, the place of supply of services is the country of residence of the third country person. In this case, the reverse charge rule does not apply, as this rule applies to entrepreneurs and not natural persons.

In principle, therefore, this type of sale is not subject to taxation in Poland at all. The taxpayer from Poland does not issue a Polish invoice for this. In this case, the seller should register in the country of residence of the third country consumer and settle the value added tax in accordance with the local regulations.

The above considerations are confirmed by a letter of May 9, 2012 issued by the Tax Chamber in Łódź (IPTPP2 / 443-118 / 12-4 / KW) on the place of taxation with value added tax in the case of the sale of licenses to buyers from the European Union and from outside the Community .

When the license is sold to a consumer in a country outside the EU, the place of taxation is the country of residence of the consumer. This obliges a Polish taxpayer to settle VAT in accordance with the regulations of a third country. This type of transaction is also not included in the personal exemption limit specified in Art. 113 paragraph. 1 of the VAT Act.

Moving on to the summary, we can see that the issue of taxing the sale of licenses is determined primarily by the status of the buyer. In addition, in the case of sales to a consumer, it is also important whether the taxpayer's place of residence is within the EU or outside the EU.