Renting a car abroad - VAT settlement

Service-Tax

Due to the dynamics of running a business, an entrepreneur, a commercial law company or employees of these entities are forced to travel frequently, also outside the territory of Poland. In addition to transport to another country, there is usually also a need to travel there, caused e.g. by the need to travel to the contractor. Entities dealing with car rentals for a specified period of time then play an important role. However, it is worth remembering that the time (period) in which the car rental takes place abroad has important tax consequences in terms of VAT.

What is the place of taxation rule for supplies of services?

Pursuant to Art. 5 sec. 1 of the VAT Act, subject to the paid provision of services within the territory of the country. The provision of services undoubtedly includes car rental.

In this case, we will be dealing with the import of services, which should be understood as the provision of services, where the taxpayer is the recipient (entity using the car rental services) referred to in art. 17 sec. 1 point 4 of the VAT Act, that is "a legal person, an organizational unit without legal personality or a natural person purchasing services, if the following conditions are jointly met:

a) the service provider (entity dealing with car rental) is a taxpayer who does not have a registered office or a permanent place of business in the territory of the country, and in the case of services to which art. 28e, the taxpayer is not registered in accordance with article 5. 96 sec. 4;

b) the recipient is:

-in the case of services to which art. 28B-the taxpayer referred to in art. 15, or a non-taxable legal person referred to in art. 15, registered or obliged to register in accordance with art. 97 sec. 4;

- in other cases - the taxpayer referred to in art. 15, having a registered office or a permanent place of business in the territory of the country or a non-taxable legal person referred to in art. 15, established in the territory of the country and registered or obliged to register in accordance with art. 97 sec. 4”. The general rule of the place of taxation of services was expressed in art. 28b paragraph. 1 of the VAT Act: "the place of providing services in the case of providing services to the taxpayer is the place where the taxpayer who is the recipient of the service has its registered office".

Assuming such a general assumption, it should be pointed out that in the case of renting a car by an entrepreneur based in Poland, e.g. in Germany, then Poland should be considered the place of providing services, and therefore the entrepreneur would be obliged to settle VAT in Poland.

However, the Polish legislator provided for exceptions to the general rule for certain services in the VAT Act. They concern, among others short-term rental of means of transport.

What are the tax consequences of renting a car for up to 30 days?

What are means of transport? According to the Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112 / EC on the common system of value added tax, the concept of means of transport includes motor vehicles or other vehicles, as well as other types of equipment and devices for transporting persons or goods from one place to another, including those designed to be pulled, shifted or pushed by vehicles and essentially designed and actually capable of being used for transport.

Pursuant to Art. 28j paragraph. 2 of the VAT Act, short-term rental of means of transport is understood as continuous possession or use of a means of transport for a period not exceeding 30 days, and in the case of vessels - for a period not exceeding 90 days.

In this case, the place of supply of services will be the country where the means of transport are actually put at the disposal of the recipient (the "keys are handed over").

Example 1

The entrepreneur is based in Poland. He has a contractor in Germany. Employees of the Polish entrepreneur go to meetings by flying from Poland to Germany. On site, they rent a car from a German car rental company for a period of 5 days.The 5-day period is within the 30-day limit for using a car, so that it is considered a short-term rental. The Polish entrepreneur will not be obliged to settle VAT in Poland for the import of services.

However, if a German entity dealing with car rental provided a Polish entrepreneur with a car in Poland (he delivered the car "to the door"), then the Polish entrepreneur will be obliged to settle VAT on the import of services in Poland. In the case of short-term rental of means of transport (continuous use up to 30 days), the place of transferring the means of transport (car, plane) is of key importance. The place of supply of the services in this case is the place where the tenant or a third party acting on his behalf takes physical possession of it.

What are the tax consequences of renting a car for more than 30 days?

In the case of using the means of transport for a period exceeding 30 days, the general rule expressed in Art. 28b paragraph. 1 of the VAT Act: "the place of supply of services in the case of supply of services to a taxable person is the place where the taxpayer who is the recipient of the service has his registered office”.

Example 2

A Polish entrepreneur rents a car in Germany from an entity specializing in car rental. The duration of the lease was specified by the parties as 40 days. Due to the fact that the entrepreneur is based in Poland, he will be forced to settle VAT on the import of services in the country. The place where the car is handed over will be irrelevant in this case.
Start a free 30-day trial period with no strings attached!

Renting a car abroad through a short-term contract - tax consequences

Pursuant to Art. 28j paragraph. 2 of the VAT Act, short-term rental of means of transport is understood as continuous possession or use of a means of transport for a period not exceeding 30 days.

Example 3

The Polish entrepreneur has signed a contract with a German entity dealing in car rental for the use of the car for a period of 10 days. The car was handed over to an entrepreneur in Germany. After the end of the 10-day period of the contract, the Polish entrepreneur decided to conclude another contract for a period of 25 days, all the time using the rented car. Can such a situation be treated as a short-term rental of means of transport?

It is true that none of the above contracts separately exceeds a 30-day period, which is treated as a short-term car rental, but in this case the continuity of car use will be important, and not the duration of individual contracts.

Therefore, the second lease agreement cannot be considered a short-term lease of means of transport, therefore the Polish entrepreneur will have to settle VAT on general terms, i.e. in Poland - the place where he has his seat.

However, it is worth remembering that the mere signing of the contract is not a determinant of its duration.

Example 4

The Polish entrepreneur has signed a contract with a German entity dealing in car rental for the use of the car for a period of 26 days. In fact, the Polish entrepreneur used the car for 2 months (assuming 60 days). Then the car rental contract does not constitute a short-term rental service. The signing of the contract is only the presumption that the car has been handed over to the lessee for the period specified in the contract. The most important thing, however, is the time you actually own the vehicle.

When car rental abroad occurs, to avoid later disputes with the tax authorities, there are two key aspects to pay attention to, namely:

  • place of handing over the vehicle,

  • the duration of the car rental.

This is a prerequisite for determining the place of service provision, and thus the proper VAT settlement.