The government institutions of the United States of America, in particular the U.S. Department of Defense (hereinafter: USA), are among the largest and most reliable entities ordering the supply of goods and services in the world. The value and purpose of these orders result in a number of legal and formal restrictions that must be met in order to become a supplier, subcontractor of a supplier, or service provider of goods and services to the U.S. Army.
In addition to obvious business benefits, one should not forget about the tax benefits. The main advantages include, under certain conditions provided by regulations, exemptions from VAT, excise tax, and personal income tax/corporate income tax (PIT/CIT).
Important!
Tendering
The U.S. Government, through its institutions, orders many different products and services. Entities from outside the USA can often participate in these tenders. The main subjects of orders include, among others: the supply and maintenance of residential facilities and related maintenance activities (cleaning, repairs, replacement of parts, etc.), as well as the current needs of the military, e.g., fuels, oils, equipment servicing, construction of infrastructure facilities, and supply of mess halls and canteens.
Three basic steps to become a supplier to the U.S. Army:
- Obtaining a Data Universal Numbering System — DUNS.
- Obtaining a NATO Commercial and Government Entity Code — NCAGE.
- Registering as a new supplier in the System for Award Management database.
To participate in the first and each subsequent tender, a one-time registration in the System for Award Management (SAM, https://www.sam.gov/SAM/) online database is sufficient before entering the first tender. Registration in the SAM system requires prior registration in two free databases: first in the commercial Data Universal Numbering System (hereinafter: D-U-N-S®), and then in the governmental (hereinafter: NCAGE), as well as obtaining unique codes.
Establishing business relations and obtaining information on U.S. Government contracts
Information about U.S. Government tenders can be sought on the U.S. Department of Defense website (https://www.defense.gov/). However, the most practical way is to browse the online database where U.S. Government tenders are published (https://sam.gov/). Another source of information is the USA Spending portal.
The USA Spending portal collects all U.S. Government expenditures worldwide. The information contained on this portal allows obtaining data on already contracted suppliers, which may contribute to establishing business relations with reliable business partners for future tenders, e.g., as subcontractors.
Information can also be found on Polish websites. The Ministry of Development and Technology posts information regarding international public procurement (https://www.gov.pl/web/rozwoj-technologia/miedzynarodowe-zamowienia-publiczne).
Tax preferences
Cooperation with the U.S. Army is associated with specific legal conditions, such as tax regulations, possible exemptions, international regulations, and documentation requirements.
VAT exemption
As a result of the bilateral Agreement between the Government of the Republic of Poland and the Government of the United States of America on the status of United States armed forces in the territory of the Republic of Poland dated December 11, 2009 (Journal of Laws 2010, No. 66, item 422) – Status of Forces Agreement (SOFA), an entrepreneur who is a contractor or subcontractor of a contractual contractor for the U.S. Army or directly for the U.S. Army may be exempt from VAT on these supplies. The VAT exemption applies exclusively to contracts executed in the territory of the Republic of Poland.
This exemption involves applying a 0% VAT rate for the supply of goods or services directly to the U.S. Army or to a U.S. contractual contractor.
In the case of entities based in the USA that are not registered for VAT in Poland, the exemption may be applied by way of VAT refund based on a request submitted to the head of the tax office under the conditions specified in the relevant regulations. Both the U.S. Army and the U.S. contractual contractor may apply for a refund.
From the perspective of an entrepreneur using the preferential 0% VAT rate, it is essential to obtain a written order containing a detailed description of the supply (specification)—this may be, for example, a contract and a VAT exemption certificate—prior to submitting the declaration for the period in which the tax obligation arose for the supplies of goods or services provided to the U.S. armed forces. These are necessary conditions for applying the preferential VAT rate. The deadlines for obtaining these documents are non-recoverable.
If a company is a subcontractor of the main contractor who won a tender for the U.S. forces, it may also benefit from the preferential 0% VAT rate. In this case, good coordination with the main contractor is crucial—since it is the main contractor who is obliged to obtain the aforementioned certificate and bears the related responsibility. The rules for applying the 0% VAT rate are the same as for the main contractor.
Income tax exemption
Exemption from corporate income tax (CIT) and personal income tax (PIT) applies to Polish companies and subcontractors for the supply of goods and services to U.S. armed forces stationed in Poland under Article 2(a) of the Agreement of August 15, 2020, on Enhanced Defense Cooperation (hereinafter: EDCA), or for the construction of infrastructure for these armed forces based on contracts or subcontracting agreements concluded with or on behalf of these armed forces.
Other exemptions
The EDCA Agreement also provides for other aspects of tax preferences, e.g., exemptions from VAT and excise tax on goods imported by the U.S. armed forces or on their behalf for their exclusive use. This also applies to the movement of goods from or to any other country, including from or to countries that are within a common customs area with the Republic of Poland, to or from the territory of the Republic of Poland.
The condition for applying the exemption is the declaration of these goods on a certificate specified in Article XI, paragraph 4 of the NATO SOFA agreement (currently form 302), and the U.S. armed forces are the recipient of such goods.
A lot of detailed information about procedures, requirements, and document flows can be found in the guide prepared by the Ministry of Development and Technology. KR Group experts will be happy to answer all your questions regarding tax preferences.
KR Group provides VAT-related settlement services for several of its clients, mainly from the fuel and construction industries, regarding supplies to the U.S. Army. We also have experience in VAT refunds for U.S. contractual contractors.
