Consignment warehouse - what is it?
What is a consignment warehouse? It is a type of combo service that is gaining more and more popularity in the shipping industry. It is a special legal structure, which has been extended with such options as: commission agreement, storage agreement, and sale agreement. Consignment warehouses were created to be operated by third parties. The rest does not change - the warehouse continues to store goods taken by different buyers. An interesting aspect of this type of agreement is that the goods in the warehouse become the property of the buyer only after they are taken from the warehouse - this is the origin of the third pillar of the consignment warehouse, i.e. sale. This type of institution is used in many industries where not only the availability of spare parts or semi-finished products counts but also a fast delivery time in case of high demand. Consignment warehouses are based on international trade and also involve manufacturers of parts from outside the European area. This type of contract is also precisely defined in the VAT Act.
Consignment warehouse - what does it consist of?
What are the basic elements and what characterizes a consignment warehouse agreement? The essence consists of the following segments:
- goods are delivered to Poland by a foreign entrepreneur. Often it is a company from outside the EEA, which specializes in the production of semi-finished products;
- each of these suppliers retains full ownership of the goods, intermediate products, and components in storage. It bears the risk and cost of storage,
- the customer acquires full title to the goods and takes them from the warehouse when they are needed in production.
This is a fairly simple system that is readily used by manufacturers who need specific spare parts and allows for better management of costs associated with warehousing.
What is the difference between a consignment warehouse and a regular warehouse? From the technical point of view, nothing. It is the same warehouse space in which specific goods await their turn and reach a selected sender. The devil is in the details, procedures, and tax regulations. It is a form specifically designed for manufacturers who are forced to source specialized spare parts that are not produced locally. Their cost of storage can be significant, and on the other hand, the manufacturer from abroad cares about gaining more markets. This is a three-tier type of agreement that represents some compromise between the foreign supplier and the domestic buyer. It is worth remembering that as the goods are taken from the warehouse, the tax obligation changes, which falls on the buyer.
Consignment warehouses - what are the procedures?
What is the procedure for delivering goods to the consignment warehouse? It is worth starting from the fact that the movement of goods to the consignment warehouse is treated as an intra-Community acquisition of goods. To account for delivery in this way, several conditions must also be met:
- the foreign supplier cannot be registered as a VAT payer in Poland;
- the stored goods must be intended for further production. Product destined directly for trade is excluded from such services;
- the entity running the warehouse submitted to the local tax office a written intention to run a consignment warehouse;
- the entity running the consignment warehouse is obliged to keep accurate records of goods which will allow for their quick identification in the event of an inspection.
Consignment sale - what next if all conditions are met? From now on you can supply semi-finished products for further production and apply the principles of intra-Community acquisition of goods. This means:
- the supplier of the parts has a much easier way to account for the delivered products. He bears the costs of storage, but at the same time has the guarantee of its receipt and is exempt from being a VAT payer.
- The obligation of intra-community settlement falls on the purchaser. At the same time, he can better plan his warehouse purchases and has immediate access to products not manufactured in Poland.
This type of transaction is a very interesting mechanism, which is legal in Poland and allows for significant simplification of the tax procedure.
Consignment agreement - what are the tax obligations?
What are the tax obligations and do consignment agreements provide for any legal exceptions? Tax obligation arises each time when goods are taken from the warehouse. Then the Polish entrepreneur is obliged to pay within the framework of the VAT Act no later than on the day of invoice issuance. Please note, if the goods have not been collected within 24 months, they are considered collected and you have to pay tax on them and issue an invoice to the supplier. The obligation to pay dues disappears when the cargo is moved to another location in the warehouse before 24 months have passed. This method of settlement has its limitations and must also protect foreign suppliers from being held in storage for too long.
Are there still any exceptions in consignment storage contracts? Everything depends on several unusual situations that may occur in a company's warehouse. Goods may not only be damaged but also used up before they are collected. Then the obligation to collect and pay VAT occurs with their discard or destruction. If the specific date of discarding the cargo cannot be determined, then the obligation to pay arises on that very day. If the foreign supplier becomes a VAT payer in our country, then the legal and tax obligation changes on the day of its registration. This applies to all goods that remain in the warehouse and have not yet been collected by the buyer.
Consignment warehouse agreement - is it worth using?
Is it worth using the consignment warehouse option? It has many advantages, but at the same time, it imposes additional obligations on the buyer and also requires the creation of separate storage space. However, the greatest influence on the interest in this form by entrepreneurs in Poland is the considerable tax simplification, which arises only at the moment of collecting the cargo from the warehouse. It is also worth using a good IT system, which will not only put the warehouse management in order but also inform the buyer about the tax obligation. This type of agreement based on commission, storage, and sale is a very interesting form of international trade that deserves to be familiarised with its principles.