Delivery of goods with assembly refers to a combination of two elements: the supply of goods, accompanied by an assembly service at the destination of the goods.
In business practice, determining whether a transaction qualifies as a "supply of goods with assembly," or simply a supply of goods or a construction/assembly service (potentially related to real estate), can be challenging. There are many variations and from Polish perspective proper classification can significantly affect how the transaction is invoiced and taxed for VAT. Different classification of the transaction made by the parties involved can lead to discrepancies that the tax authorities will easily identify.

In the case of a supply of goods with assembly the primary element is the supply of goods with the cost of assembly included in the price. It is a complex provision, with the objective being the delivery of an assembled, fully functional, and ready-to-use product. The assembly process, however, involves more than just simple actions that enable the functioning of the supplied product according to its intended purpose. For a transaction to be considered a supply of goods with assembly, the assembly work must be performed by individuals with specialized knowledge and skills.

Assessing whether a transaction qualifies as a delivery of goods with assembly or another provision can be difficult/ambiguous. In such cases, it is advisable to apply for a Binding Rate Information ruling (in Polish “WIS”; more on WIS in the article Securing a tax position for Polish investments: Investment Agreement and Co-operative Compliance Program).

Place of taxation

The VAT Directive, and subsequently the Polish VAT Act, specify that the place of taxation for a delivery of goods with assembly is the country where the assembly of the delivered goods takes place. This rule is an exception to the cross-border supply of goods, which is taxed in the country of dispatch (ICS and ICA scheme).

Must the supplier be a Polish VAT taxpayer?

The Polish VAT Act provides an exemption from the taxation of cross-border movement of own goods for the purpose of a delivery of goods with installation. Therefore, if a foreign entity solely moves its own goods from another EU country to Poland for such a delivery of goods with assembly it is not required to report deemed ICS and ICA.

Moreover, if the supply is made to a business established or having a fixed establishment in Poland, a delivery of goods with installation can potentially be settled using the reverse charge mechanism, eliminating the need for the seller to register for VAT in Poland.

However, please note that the decision to settle a delivery of goods with assembly under the reverse charge mechanism without VAT registration in Poland should be preceded by a thorough analysis of all aspects and conditions of the transaction.

Timing of settlement and invoicing

Typically, multiple invoices are issued in the case of a delivery of goods with installation. The way each invoice is settled can be problematic for both the seller and the buyer (discussed further in the next section).

As the main element of the supply with assembly is the delivery of goods, the VAT treatment should align with the nature of the goods supply. In other words, if the objective of the transaction is the delivery of a properly assembled and functioning product, with the transfer of the right to dispose of the goods passing from seller to buyer at the completion of the provision, the VAT event occurs on the day the assembled goods are handed over to the buyer.

Consequently, invoices issued prior to the supply should be treated and settled for VAT as down payment invoices (recognized for VAT in the period of receiving/making the payment). In contrast, the invoice issued after the goods are delivered should be treated as the final invoice, where the date of supply — and thus the date of the tax point — is the actual handover date of the goods to the buyer. Amounts expressed in currencies other than PLN should be converted according to date of the down payment/supply, or the invoice’s date if it was issued prior to the taxable event.

Split payment?

For delivery of goods with assembly, unlike construction services, the mandatory split payment mechanism generally does not apply. However, it is not entirely excluded, especially when the parties of the transaction wish to exercise due diligence (more on the split payment mechanism in the article Split payment mechanism).

Controversies in settling deliveries of goods with assembly

The method described above for settling a delivery of goods with assembly often raises doubts for both parties of the transaction and can lead to discrepancies in the reporting periods of invoices.

In our practice — whether from the perspective of foreign entities or Polish companies (contractors/customers) — the following unclear situations periodically arise, generating confusion both in relation with the counterparty and in tax settlements:

  1. In cases of invoices subject to Polish VAT, the tax obligation for invoices issued before the supply (which, as previously mentioned, are treated as down payment invoices) arises on the date of receiving/making the payment. However, we have encountered situations where the seller, following our advice, applied the cash accounting method, while the buyer settled the purchase under the general rules — in the period when the invoice was received (e.g., a month before the payment). We learned about the discrepancy during a tax inspection.
  2. We were also confronted with an approach where a buyer believed from the outset that invoices issued before the actual supply documented a partial supply and should be settled based on the date of the partial delivery. This approach was eventually accepted by the seller, as recognizing the sale earlier did not expose him to tax risk, but it could have negatively impacted the cash flow due to the agreed payment terms (VAT was paid before the seller received the payment).
  3. For invoices issued under the reverse charge mechanism, it is also easy to encounter discrepancies in determining the timing of the tax obligation. It may happen that the seller reported an advance invoice on the date it was issued, while the buyer recognized it on the payment date or not at all. Even more confusion arises if it turns out that the invoice should have included Polish VAT (e.g., the supplier wrongly assumed that the recipient was a Polish entity or had a fixed establishment in Poland) — a retrospective VAT registration and correction of previous settlements is feasible but requires a methodical approach.

Given the above experiences, especially in the case of complex, high-value projects, it is reasonable for the seller to consult with both tax advisors and the counterparty on the nature and method of settling the delivery with assembly before invoicing begins. Developing the optimal solution should consider the provisions of the tax law in the context of the specific contract, the needs or accounting system’s limitations of the parties, and the associated tax risks.