Hi qcman,
Briefly, any goods which are sold within the European Union and
shipped to a European Union address are charged VAT - the customer
pays this tax. If the customer is a European Union business who can
supply a VAT business number, the goods are zero-rated and not subject
to VAT. Goods shipped to all other countries are also zero-rated and
not subject to VAT.
Poland:
- In most cases, Value Added Tax is payable at a rate of 22%.
- If the annual turnover is less than PLN 80,000, the owner of the
business is exempt from VAT.
http://www.worldwide-tax.com/poland/pol_other.asp
Value-added tax: Poland & Czech Republic: 22%
"The VAT charged by a business and paid by its customers is known as
output VAT (i.e. the VAT on its outputs). VAT paid by a business to
other businesses on the supplies that it receives is known as input
VAT (i.e. the VAT in its inputs). A business is generally able to
recover its input VAT to the extent that the input VAT is attributable
to its taxable outputs. Input VAT is recovered by setting it against
the output VAT for which the business is required to account to the
government."
http://www.wordiq.com/definition/VAT
How will changes in international trade procedures affect the ten new
Member States when they join the European Union (EU) in May?
http://www.waleseic.org.uk/euronews/april2004/article1.htm
SUMMARY:
When the business in Poland buys the fabric from the Czech Republic,
they will pay 22% VAT. They can avoid paying this tax by supplying a
VAT number to the business in the Czech Republic.
When the business in Poland sells the garments to a member of the
European Union, they will charge the tax (22%) unless the buyer
supplies a VAT number (zero-rated).
When the business in Poland sells the garments to countries not in the
European Union, they will not charge VAT (zero-rated).
Additional Links of Interest:
Trading in the European Union
http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074416497
VAT Systems Information from the Accession Countries: Click on "Poland VAT System":
http://www.deloitte.com/dtt/article/0,2297,sid%253D18635%2526cid%253D42487,00.html
EU Enlargement: EC Sales Lists (ESLs) and VAT Registration Numbers:
http://www.hmce.gov.uk/business/importing/euenlargement/eu-enlargement-vat-reg.htm
VAT:
http://www.hmce.gov.uk/business/vat/vat.htm
Importing, exporting and EC trade:
http://www.hmce.gov.uk/business/importing/importing.htm
I hope I've been able to help you sort this out. If you have any
questions, please post a clarification request before closing/rating
my answer and I'll be happy to reply.
Thank you,
hummer
Google Search Terms Used:
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Request for Answer Clarification by
qcman-ga
on
01 Jun 2004 11:58 PDT
Thanks very much for your detailed reply. Because of the "young"
status of EU membership, the governments of Czech and Poland have not
fully enunciated their laws. In this case, I am buying the Czech
fabric, and the Polish factory is manufacturing my fabric into
garments.
If you can give me the specific ruling in the EU that can explain to
them that no VAT needs to pass hands I would appreciate it.
Thanks again
|
Clarification of Answer by
hummer-ga
on
01 Jun 2004 13:45 PDT
Dear qcman,
Thank you for the nice rating and tip, I appreciate it.
"If you can give me the specific ruling in the EU that can explain to
them that no VAT needs to pass hands I would appreciate it."
I'm sorry, I misled you. I seem to have gotten myself muddled, perhaps
by thinking about clothes being zero-rated:
http://www.resultsforbusiness.co.uk/tax/vat.shtml
If I understand your question above, you are talking about the
transaction between you and the Polish factory (the factory buys
fabric from you, to be made into clothes). In such a case, the factory
will pay the VAT (22%) for your fabric and will apply for a refund
later. So the VAT actually will pass hands between you, but the
factory will get it back, less any VAT owing from their own sales. I
gave you the correct information at this link...
Value-added tax: Poland & Czech Republic: 22%
"The VAT charged by a business and paid by its customers is known as
output VAT (i.e. the VAT on its outputs). VAT paid by a business to
other businesses on the supplies that it receives is known as input
VAT (i.e. the VAT in its inputs). A business is generally able to
recover its input VAT to the extent that the input VAT is attributable
to its taxable outputs. Input VAT is recovered by setting it against
the output VAT for which the business is required to account to the
government."
http://www.wordiq.com/definition/VAT
...but my analysis was wrong. I'm sorry for any confusion I may have caused.
Ireland is a nice little Guide online which will give you a pretty
good idea how VAT works.
Ireland: VAT for Small Businesses:
http://www.revenue.ie/pdf/it49.pdf
Sincerely,
hummer
|
Request for Answer Clarification by
qcman-ga
on
02 Jun 2004 04:07 PDT
Thanks.
My company purchases the fabric, and the factory merely provides the
labor and some trims to produce the finished garment. So they do not
own the fabric at any point
|
Clarification of Answer by
hummer-ga
on
02 Jun 2004 05:59 PDT
Hi qcman,
Ok, in that case, the factory will not have to give you any VAT when
they accept the fabric to work on - they are not buying it and won't
be reselling it so they've nothing to worry about. However, your case
is a different matter. If they register for the VAT, the factory will
transact 22% VAT on the bill they give to you (only for the work they
perform, in other words, tax on the value that they add to the
fabric). If you want to recover that amount, you'll have to register
for the VAT also (this would also be advantageous for your
transactions with the Czech supplier). If you make less than PLN
80,000 per year, you have the option of not registering your business
for a VAT number - it would save on doing alot of paperwork but you
have to balance that with the amount of VAT you could recover if you
register.
"Value Added Tax (VAT) is a general consumption tax assessed on the
value added to goods and services.
It is a general tax that applies, in principle, to all commercial
activities involving the production and distribution of goods and the
provision of services. It is a consumption tax because it is borne
ultimately by the final consumer. It is not a charge on companies."
http://www.eurunion.org/legislat/VATweb.htm
Poland:
- In most cases, Value Added Tax is payable at a rate of 22%.
- If the annual turnover is less than PLN 80,000, the owner of the
business is exempt from VAT.
http://www.worldwide-tax.com/poland/pol_other.asp
I'm glad you have been persistent with your clarifications and I hope
you now feel confident as to what will happen. I know exactly how you
feel trying to figure it all out (I've had a similar experience) and
it must seem overwhelming at times. If the factory is still worried,
tell them this: when you pass them the fabric, there is no charge.
Even if you had to charge VAT, 22% of zero is zero.
Regards,
hummer
|
Request for Answer Clarification by
qcman-ga
on
10 Jun 2004 07:59 PDT
Thanks for your reply. I have been holed up with pneumonia for a week,
and unable to deal with my business.
YOu are right, it is a problem dealing with this. Since my turnover is
more than 80K, I would need to register. How I do this is a mystery,
as is whether by registering I will owe EU or Polish taxes. We are an
American company exporting finished garments from Poland to the U.S. I
already pay enough taxes to the U.S.
|
Clarification of Answer by
hummer-ga
on
10 Jun 2004 11:24 PDT
Hi qcman, I'm glad you are recovering ok.
Perhaps the following links will help. I think it will be to your
advantage to register in order to qualify for deducting VAT on your
purchases.
"An entity which intends to become a Polish VAT payer should submit,
to the appropriate tax office, a completed VAT-R application form (in
Polish) and NIP-2, in order to receive an NIP (tax identification
number). The appropriate tax office here is the tax office local to
the place where the services will be carried out..."
"...At present, these documents in addition to completed VAT-R and
NIP-2 forms should be enough to register a foreign company for VAT in
Poland."
http://www.masterpage.com.pl/outlook/vat.html
"If the principal place of business or residence of the entity is
established in the territory of the Republic of Poland, the competent
tax authority is, as a general rule, the head of the tax office
competent for the place where the taxable activities are carried out."
http://europa.eu.int/comm/taxation_customs/publications/info_doc/taxation/vat_ec/Poland/vat_ec_pl-en.htm
Good luck!
hummer
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