The limited liability company (SIA) has been a value added tax (VAT) payer since March 2022. In February of this year, SIA bought a used passenger car for 14,000 euros for business purposes from a Polish company. The invoice includes VAT at a rate of 0%. Does this transaction need to be reported in the VAT return? If so, for which month? Was the Polish company allowed to apply a 0% VAT rate if the SIA was not yet a VAT payer in February, but had only submitted an application to the State Revenue Service (SRS) for registration?
The taxpayer is considered registered in the SRS VAT payer register on the second working day after receiving the decision in the SRS electronic declaration system. Based on the information provided in the question, it is assumed that the car is purchased by a company that is not a VAT payer.
In order to accurately determine the application of VAT to the purchase of a car in the European Union (EU), it is necessary to understand whether the car is being purchased - new or used. For the purposes of the Value Added Tax Law, a new car is considered to be a car that has been used for less than six months or has driven less than 6,000 kilometers. Accordingly, if the seller has used the car in his possession for more than six months or has traveled more than 6000 kilometers since the moment of purchase, then it is considered a used car. Based on the information provided in the situation, it is believed that the company purchased a used car.
Buying a used car in the EU is a non-VAT transaction, therefore VAT is not applied.
A Polish company delivers goods to a Latvian company, which at the time of purchase is a legal entity and is not a taxable person, in accordance with Article 138, Clause 1 of Directive 2006/112/EC on the common value added tax system (VAT Directive):
member states exempt from tax the supply of goods which the seller, buyer or other person sends or transports on behalf of the seller or buyer to a destination outside their respective territory, but within the Community, if the supply is made to another taxable person or legal person who is not a taxable person and which as such acts in a Member State other than the Member State of the starting point of dispatch or transport.
Accordingly, the tax invoice of the Polish company must be indicated with a reference to Article 138, Clause 1 of the VAT Directive.
Latvian LLC, which is not a registered VAT payer at the time of purchase of a used car, does not present the transaction for the purchased car in the VAT declaration and is not entitled to deduct input tax from the value of the transaction.
Source: iFinanses