Buying a website and VAT

[dymockpoet]

Hi,

I've agreed with someone to buy a website from them for under $5k. They are based in Poland, I am based in the UK. The website is a part of his company.

VAT in Poland is 23% (seems high). I initially said that I would like to buy the website as a private person (because I am currently operating as a sole trader, although I have setup a company as well, but it's not currently trading). He's saying that according to his accountant, if he is able to sell the website to my company (company to company), then he won't have to pay the 23% VAT, but I will. He would rather do this because otherwise he will have to pay 23% (VAT) + 18% (income tax) on the agreed price.

Does anyone have any experience with this or know anything about how VAT applies to website sales?

[Thomas]

Sounds about right. If he sells websites regularly then VAT would be added as it's considered the same as any other product/service (I am not an accountant, speaking from personal experience). If it's a one-time asset sale that's not part of his day to day, it could be different and exempt from VAT.

If you have a company then you can usually zero-rate VAT. As an individual, no chance.

This should be a question for your accountant anyway. If you're planning on buying sites regularly, get yourself setup properly now, running under a company is almost definitely worth it if you're making £30k+ a year.

[Kay]

[Edit - posting at the same time as Thomas - again! ]

This is a really interesting question, thanks. It's also one I don't know the answer to - hope someone else does! I have to admit that I'm a bit confused by this, especially the mention of income tax.

If you're buying from a company, then the company would either have to pay corporation tax (on profits) or capital gains tax (on gains), depending on the nature of his business and this sale. I can't figure out where the income tax might come in. Can you explain, please?

As for VAT, I hope there's an expert here to reply to you. Maybe one of the brokers has this kind of info handy. If there's anyone here with a good knowledge of VAT, please stick your hand up. We need you!

[dymockpoet]

Thanks for your help, guys. I may have confused the issue slightly by not mentioning/realising that as a sole trader I do count as a business, not an individual when doing business with another business, so in theory no one would have to pay VAT on the transaction. But, I'm not registered for VAT, and he needs a VAT EU number (so he says). So it's a bit tricky.

I do have an accountant, Thomas, who I am speaking to about this, but I thought I'd check in with you guys here as well. I do have a company setup but the plan was to transfer the sole trader business to the company in November 2014, and until then just do everything as a sole trader.

[Lobigalo]

Interesting question, I did a little digging and still can't really say. This site seems to give a decent amount of information on VAT in Poland. http://www.paiz.gov.pl/polish_law/taxation/vat

The site states "Taxpayers selling goods to buyers in EU states may apply the zero-per cent VAT rate as part of the intra-Community acquisitions of goods."

Only thing with the above statement is I don't know if a website is considered "goods." I also can't find a full list of Polands exemptions to VAT. I work in sales & use tax (which is similar) and would say like Thomas stated, you might need to find out what course of business the seller is in. Because if he is not in the business of selling websites this transaction may be deemed an "occasional sale" which in many sales & use tax transactions would be exempt.

Sorry I could not be more helpful. Have your accountant look into it but my belief is if you don't live or register your company with Poland they cannot come after you for VAT because they have no nexus with your company.
Please keep us updated on this, as I would love to know more!

[Mikl]

He's saying that according to his accountant, if he is able to sell the website to my company (company to company), then he won't have to pay the 23% VAT,

He is clearly confused (or his accountant is). The test of who pays the VAT is not whether he is selling to a company, but whether he is selling to a VAT-registered entity. That could be an individual, a partnership or a company. The important thing is whether the customer (you) are registered for VAT.

If you are, then you can supply him with your VAT number, and he doesn't have to add VAT to the invoice. That's the end of the story.

If you are not registered, or if you do not wish to provide him with your VAT number, he will add VAT to the invoice. It is then you who pays the VAT. If you are registered, you can reclaim the VAT in the normal way, so there is no net cost to either of you. If you are not registered, you pay the VAT on the invoice, just as if you were making the purchase within your own country. The only difference is that the rate is the one that applies in Poland, which might be higher or lower than the one that applies in your country.

As far as I know, it makes no difference whether his is selling the site in the course of trade (which would be the case if he is in the business of buying and selling websites) or whether he is disposing of a business asset (I'm not 100% sure of that point).

Also, you mentioned about his paying income tax. That has got nothing to do with you. His income tax position is not affected by your trading or VAT status.

By the way, I am assuming that you in the EU. If you are not, then you will not be registered for VAT, so none of the above applies.

Mike

[Clinton]

Of course if you're UK based and not VAT registered (and therefore unable to claim back input tax) I wonder what the tax situation would be if you "routed" the purchase through a third party living in the US who is not liable to paying or collecting VAT. I suppose the higher the value of the site the more it's worth investigating ways of keeping the costs down (though for large enough purchases the simplest way of avoiding the VAT would be to get VAT registered).

[Mikl]

Clinton,

What you describe might work. Assuming a website is deemed to be a product rather than a service, the Pole will not have to add VAT to his invoice if he sells it to an entity in the US, as it would be treated as an export. In general, the US company does not collect VAT, so the purchaser (the OP, in this case) would escape liability

There are two possible snags. First, as an exception, non-EU vendors are required to charge VAT on digital sales to the EU, that is, on things like e-books and MP3s. Whether a website would be considered to be a digital product is doubtful, but it's worth keeping in mind.

More importantly, if the tax authorities saw this as an artificial mechanism to avoid VAT, they would stamp on it. That's unlikely to be the case with a single purchase such as this, but if either the purchaser or seller was doing this sort of thing (using a US intermediary) on a large scale, that could well lead to trouble.

Mike