Free transfer of goods and VAT
Sometimes it happens that entrepreneurs decide to purchase and provide their contractors with various types of gifts, souvenirs or advertising gadgets. The goal is to maintain good business relations, thank contractors for the current cooperation and encourage them to continue it. However, please remember that giving such gifts has tax consequences.
Free transfer of goods and VAT
As a rule, paid actions are subject to VAT. However, it should be borne in mind that, in certain cases, acts of free transfer of goods belonging to an enterprise by a taxpayer are also considered to be taxable supplies of goods, if the taxpayer was entitled in whole or in part to deduct VAT on the acquisition, importation or manufacture of the goods, or their components (Article 7(2) of the Polish VAT Act). It is worth noting, however, that for VAT taxation on a free transfer, it does not matter whether the taxpayer used the right to deduct VAT or not.
For the purposes of VAT on free transfer of goods, it is also important that the transferred goods have consumption and use value for the recipient. Therefore, the free issue of advertising materials to contractors, i.e. leaflets, business cards, catalogues, will not be subject to taxation.
Gifts of low value and product samples – VAT exemptions
Pursuant to Art. 7(3) of the Polish VAT Act, gifts of low value and samples are exempt from taxation if the transfer is made for purposes related to the taxpayer’s business. Gifts of low value mean goods transferred by the taxpayer to one person and meeting the following criteria:
- with a total value not exceeding PLN 100 net in a tax year, if the taxpayer keeps records enabling the identification of these persons;
- the transfer of which was not included in the records referred to in point 1, if the unit net purchase price of the goods, and if there is no purchase price, the unit cost of production, determined at the time of transfer of the goods, does not exceed PLN 20.
As a consequence, free transfer of a gift net value of which exceeded PLN 20 or PLN 100 in the case of keeping additional records of the recipients will be subject to taxation.
The regulations define what a gift of low value is, but they do not require that the goods transferred be specifically defined as a gift. If the goods are given as a prize, donation, bonus or advertising gadget, it should still be considered a gift of low value, provided that it is within the value limits and is related to business activity.
If an entity provides many gifts of low value in a collective package, the value of which exceeds PLN 100, but the unit price of individual gifts does not exceed PLN 20, it should be considered that for the purposes of determining the obligation to show output VAT, what matters is the unit price of the goods in relation to a single piece of the transferred goods, not the value of the collective packaging.
Product samples are also exempt from taxation, and they are defined as a sample of a good or a small quantity thereof, which allows for the assessment of the characteristics and properties of the good in its final form. Transfer of a sample of goods by the taxpayer must be of a promotional nature and cannot serve to meet the needs of the final recipient in terms of a given product, unless meeting the needs of this recipient is an inherent element of the promotion of this product and is intended to encourage the recipient to purchase the promoted goods (Art. 7(7) of the Polish VAT Act).
Determining the tax base for gifts
In order to determine the output VAT on the transfer of goods in the event of free transfer of goods, the tax base is the purchase price of the goods or similar goods, and if there is no purchase price – the cost of production, determined at the time of delivery of the goods. Free transfer of goods does not constitute an activity that requires documentation with an invoice. For internal purposes, however, it is possible to document it with an internal accounting document.
Author: Karolina Krogulec, Junior Accountant at an accounting office in Warsaw.
