What does the VAT rate for transportation services depend on?
The final value-added tax rates are affected by several aspects, including:
- the object of transportation (transport of passengers or goods),
- type of transport (domestic, intra-community, international transport)
- The status of the recipient of the service (taxpayer, person or non-taxpayer),
- place of providing services.
The general rule is that domestic and intra-Community transport, i.e. transport that takes place within the European Union, is taxed at the 23% rate of value added tax, while international transport enjoys a 0% rate. However, it often proves troublesome to determine the place where the services are provided – that’s where we’ll start.
How to determine the place of supply of services for VAT purposes?
The VAT Law, specifically Art. 28b para. 1 of the same says that the place of supply of services to a taxpayer is the one where the recipient of the services has a place of business. But what if the entrepreneur performs the transportation service not for the recipient’s business premises, but for a permanent place of business located elsewhere? In such an arrangement, of course, it is the place of permanent business activity that is treated as the place of service provision.
However, this is not the end of the story. If the taxpayer to whom the services are provided:
- Has a permanent place of business or registered office of the company (and also when it does not have them, but has a permanent place of residence or usual place of stay) in the national territory, but the transport is performed entirely outside the European Union, the place of supply of goods transport services is the territory located outside the EU.
- It has a registered office or permanent place of business (and also when it does not have them, but has a permanent place of residence or usual place of abode) in the territory of a third country, but the transport is performed entirely in the national territory, the place of supply of services is the national territory.
The above provisions are clarified in Art. 28f, para. 1 of the VAT Law. In turn, in the paragraph 2. and 3. We read about the taxation rules for transportation of goods performed for non-taxpayers. According to the wording of the law, the place of service provision in such a case is the same as the place where the transport takes place. In such a situation, the distances traveled are also taken into account. If the commencement and termination of the transportation service takes place on the territory of two different countries, and the recipient of the service is a non-taxpayer, the place is considered to be the territory of the country where the transportation began.
What about passenger transportation?
If a company transports passengers, it does not matter who is the recipient of the service – taxpayer or non-taxpayer. The main criterion in the context of determining the place of supply of a service is the place where the transport takes place. So if we’re talking about international passenger transportation, the carrier should pay tax in every country it passes through in the course of the service.
International, intra-Community and domestic transportation
One of the criteria that determines the VAT rate, is the type of transportation. This uses the popular division into three categories:
Domestic transportation is carried out entirely on Polish territory.
Intra-Community transport begins in one European Union member state and ends in another.
We are dealing with international transportation when it meets at least one of a set of criteria:
- begins in the country and ends outside the European Union,
- begins outside the European Union and ends in the country,
- begins outside the territory of the European Union, runs through the national territory and ends in a country outside the European Union,
- begins in the territory of a European Union member state other than the national territory and ends outside the European Union,
- begins outside the territory of the European Union and ends in an EU country other than the national territory – provided that the transport passes through the national territory for a certain section.
Passenger transport and VAT
In theory, if a carrier transports passengers between Grenada and Krakow, for example, it should pay tax in Spain, France, Germany, the Czech Republic and Poland, and thus register for VAT in each of these countries. Fortunately, European Union countries have solved this in a different way.
In most cases, carriers are exempt from paying tax in third countries of the European Union – this works on the basis of reciprocity: carriers from France will not pay tax in Poland, as long as they perform occasional transport in our country (Article 134 of the Law on Tax on Goods and Services says so), just as Polish drivers do not have to worry about VAT for driving with passengers through France.
Of course, the carrier will pay VAT for passenger transportation services in its country. The standard VAT rate for passenger transportation in Poland is 8%. This rate is charged to, among others:
- rail transportation,
- Urban and suburban land transportation,
- cab services,
- Maritime and coastal transportation,
- inland waterway transportation,
- air transportation.
VAT on freight transportation services
If an entrepreneur performs freight services, he must prepare to make more complicated calculations. To correctly determine the VAT rate, it is necessary to take into account not only the type of transportation, but also the status of the recipient of the service.
Earlier in the article we explained how to determine the place of service provision – but before we go further, we need to mention two exceptions to the quoted rule:
- if the recipient is established in Poland, but the transport service is performed entirely outside the territory of the European Union, the territory outside the EU is treated as the place of supply,
- if the recipient of the service is from outside the EU, but the service is provided entirely in the country, the place of supply is considered to be the territory of the country.
You will find the relevant provisions for the listed exceptions in Art. 28f, para. 1a of the VAT Law.
What are the VAT rates for transportation of goods?
It’s time to answer the most important VAT question in the context of transporting goods: how much will the carrier pay?
- For domestic transportation, the VAT rate is 23%,
- In intra-Community transport, the VAT rate is 23%,
- In international transport, the VAT rate is 0%.
In addition, it is worth remembering that when the transport is carried out entirely outside Poland, it is not taxed in the country.
Above we have outlined the basic rules for setting the VAT rate for the transportation of goods, but – as from many rules – we can also see some exceptions. The Ministry of Finance regularly, every year, issues a regulation on reduced rates for goods and services tax. This year’s version, promulgated on December 9, 2023, will be in effect throughout 2024.
VAT rates reduced by regulation
The regulation indicates that a reduced VAT rate (up to 0%) can be applied in several cases, related to transportation. The change concerns:
- transportation of goods, provided that the said transportation is carried out entirely within the national territory and is part of an international transportation service,
- intra-Community transport of goods, provided that the service provided is part of international transport,
- services of transportation of goods for the taxpayer within the meaning of Article. 28a of the Law. Such a taxpayer must have a registered office or permanent place of business in the country – if there is none, he must have a permanent place of residence or usual place of abode in the country. The reduced rate applies to two situations: one in which the transport is carried out from a member state other than the national territory and the destination is a territory outside the European Union, and one in which the transport is carried out from an area outside the European Union to a place in the territory of a third country that is a member of the EU,
- transportation of goods carried by passengers – this includes, for example, luggage and motor vehicles. We can apply the reduced rate only if passenger transportation is taxed at 0%.
Important!
The multitude of exceptions often makes it cumbersome to determine the correct VAT rate on your own. To make it a little easier, we include a list of particularly relevant provisions that will allow you to find the provision you need without having to search through the entire law or regulation:
VAT Law:
- Art. 28a clarifies the concept of a taxpayer,
- Art. 28b makes it easier to determine the place of service provision,
- Art. 28f clarifies related issues.
MF Regulation on reduced rates of tax on goods and services:
- §4.1. indicates when a reduced tax can be applied.
