VAT in Poland – general rules & basic rates

VAT in Poland was introduced by the Act of the 8th of January 1993 on tax on goods and services. It is an indirect tax collected at each subsequent stage of trade in goods or services. Its structure assumes no tax overlap by deducting the tax paid in previous stages of trading.

What is the Value-Added Tax in Poland? What are the rules for its determination and basic rates? The answers to the questions can be found in the article.

VAT in Poland – fact summary

VAT in Poland – what is it?

The abbreviation VAT stands for Value-Added Tax. The essence of VAT can be described by four combined features: universality, multi-stage nature, neutrality for the taxpayer and proportionality. These characteristics differentiate VAT from other turnover taxes in Poland.

VAT is a tax that concerns both sellers and buyers. Its value is added to the net value of a purchase-sale transaction.

The regulation of VAT settlement in Poland means that its value is “moved” to the consumer. The entrepreneur, when settling the tax, pays its value depending on the net value of sales.

He also has the right to deduct Value-Added Tax if a given expense is related to the taxed activity. VAT in Poland should be neutral for the entrepreneur, as he is not the final consumer of goods or services.

VAT in Poland – who is a taxpayer?

VAT taxpayers in Poland include:

• legal persons,
• Organizational units without legal personality,
• Individuals who carry out independent business activities regardless of the purpose or results of such activities,
• Individuals who are recipients of services provided by entities with a foreign seat or who engage in intra-community purchase of goods.

The following entities are not VAT taxpayers:

• public administration bodies,
• public administration bodies within the framework of tasks for which they were established. There is an exception concerning activities performed based on civil law contracts.

VAT in Poland – subject-based exemption

Entrepreneurs in Poland may be exempt from VAT based on the turnover limit. According to the VAT Act, the sale made by taxpayers is exempt from tax, if its total value did not exceed 200,000 PLN in the previous tax year. As the provision indicates, the exemption does not apply to the taxpayer, but to the sale made by him.

The limit of sales does not include the amount of tax and:

• intra-community supply of goods and mail-order sales from the country and on its territory
• sale of goods and services, exempt from VAT based on taxable goods and services
• sale of goods that qualify as fixed assets, intangible assets and legal rights subject to depreciation.

VAT in Poland – subject of taxation

According to the regulations, the following services are subject to VAT taxation:

• Paid delivery of goods and paid provision of services within the country,
• Export of goods,
• Import of goods to the country,
• Intra-community acquisition of goods with remuneration earned within the country,
• Intra-community delivery of goods.

The provisions of the VAT Act do not apply to:

• Transactions of the sale of a business or an organized part of a business,
• Transactions that cannot be the subject of a legally effective agreement,

VAT in Poland – object-based exemption

Not all taxable transactions carried out in Poland result in a VAT tax obligation. The tax structure includes exceptions known as exemptions. The aim of using exemptions is to protect consumers, who are not registered taxpayers, from price increases.

Article 43, paragraph 1 of the VAT Act includes a list of object-based exemptions. This is not an enumerative catalogue as other provisions list exemptions for import and intra-community purchase of goods.

Exemptions apply to entities providing services such as:

• operations involved in medical care, focused on prevention, preservation, rescue, restoration and improvement of health,
• private education at preschool, primary, secondary, and higher levels
• foreign language teaching,
• financial services, including: management of investment funds; insurance; providing guarantees and other transaction securities; granting loans and credit with financial instruments as the subject.

VAT in Poland – tax base

According to the VAT Act, the tax base represents everything that constitutes payment that the goods or service provider received or will receive from the buyer, customer or third party. It includes grants, subventions and other similar supplements that have a direct impact on the price of goods or services provided by the taxpayer. This regulation generally defines the tax base for VAT in Poland – by taxing payments.

 The tax base also includes:

• taxes, duties, fees and other similar obligations,
• additional costs such as commissions, packaging, transportation and insurance costs, collected by the provider of goods or services from the buyer or customer.

With regard to grants, subsidies and other supplements, it should be remembered that only those received are included in the base. But, this applies only to those grants, subsidies and similar benefits that have a direct impact on the price of goods or services provided by the taxpayer.

The tax base for VAT in Poland does not include amounts related to price reductions.

VAT in Poland – tax rates

The following VAT rates are distinguished:

• 23% – the basic rate,
• 8% – the reduced rate, applicable to goods listed in Annex 3 to the VAT Act,
• 5% – the reduced rate, applicable to goods listed in Annex 10 to the VAT Act,
• 0% – the preferential rate.

The period during which VAT was reduced as part of the so-called anti-inflation shield ended on 31st of December 2022. In 2023, only the reduction of VAT on food is maintained. This means that the 0% rate will still be applicable.

Split payment system for settlements of VAT in Poland

The right to apply the 0% rate in relation to the free supply of goods and the free provision of services focused on assistance to victims of war in Ukraine has been extended until the 30th of June 2023.

Starting 1 July 2018, Poland implemented a split payment mechanism in its VAT law for B2B transactions, particularly impacting the way selected goods and services are settled. This system modifies the payment process by separating the payment into two components: the net amount and the VAT. The VAT portion is transferred directly into a special VAT account belonging to the seller.

Usage of VAT Account Funds

The funds within a VAT account are designated specifically for certain types of payments. They can be used to cover VAT liabilities or other tax obligations such as Corporate Income Tax (CIT), Personal Income Tax (PIT), excise duties, customs duties, and social security (ZUS) contributions. Additionally, these funds may be utilized to pay the VAT components of invoices from suppliers.

Sources of VAT Account Funds

Funds in a VAT account are typically replenished through VAT payments received from buyers or through VAT refunds issued by tax authorities. This ensures that the VAT funds are strictly circulated within the tax and regulatory framework.

Mandatory Split Payment from November 2019

As of 1 November 2019, the split payment mechanism became mandatory for B2B transactions involving specified groups of goods and services whenever the total invoice amount exceeds PLN 15,000 (gross). This requirement is aimed at enhancing tax compliance and reducing VAT fraud.

Scope of Mandatory Split Payment

The mandatory split payment covers approximately 150 categories of products and services as outlined by the Polish Classification of Products and Services (PKWiU) from 2008. These categories include:

• Steel products and various metals, including precious and non-ferrous metals.
• Waste products, scrap, and other recyclable materials.
• Specific electronics such as processors, smartphones, phones, tablets, netbooks, laptops, gaming consoles, inks, toners, and hard drives.
• Automotive fuels, including fuel and lubricating oils.
• Greenhouse gas emission rights.
• Building and construction services.
• Coal products.
• Automotive and motorcycle parts.

Requirements for Foreign Entities

Foreign businesses engaging in VAT-liable transactions in Poland and settling these via bank transfers are required to open a bank account in Poland to facilitate the split payment process. This ensures that the VAT component of transactions is properly managed according to Polish tax regulations.

VAT refunds

Polish VAT legislation provides mechanisms for VAT refunds, facilitating businesses in both reclaiming excess VAT and managing VAT obligations effectively across borders within the European Union.

VAT Refund Process for Polish Businesses

Polish companies can claim a VAT refund when the VAT they have incurred on purchases (input VAT) exceeds the VAT charged to their customers (output VAT). This situation often arises when businesses purchase more than they sell in a given tax period or when their purchases are primarily VAT-taxable while their sales are VAT-exempt.

Cross-Border VAT Refunds for Polish Businesses

Polish businesses may also be eligible for VAT refunds from other countries. This is particularly relevant when Polish companies engage in transactions where they incur VAT in a country different from where they are based. The eligibility and process for such refunds are influenced by the local VAT laws of the country where the VAT was paid.

VAT Refunds for Foreign Businesses in Poland

Foreign businesses with a seat or established business presence outside Poland are generally entitled to reclaim VAT paid in Poland under most circumstances. This process is significantly streamlined if the foreign business is based in another EU country, thanks to the EU Directive on VAT refunds.

Simplification Under the EU Directive

The EU Directive facilitates a smoother VAT refund process for businesses within the EU. It allows companies to apply for VAT refunds electronically through their home country’s tax portal, which then forwards the request to the country where the refund is sought. This digital approach reduces administrative burdens and speeds up the refund process.

Key Points to Consider for VAT Refunds:

1. Eligibility: To be eligible for a VAT refund, businesses must ensure they meet the criteria set by the specific country’s VAT laws. For foreign businesses in Poland, this includes having no VAT registration or fixed establishment in Poland unless the refund is explicitly tied to such presence.
2. Documentation: Adequate documentation and proof of VAT payments are crucial. Businesses need to retain invoices and receipts that clearly indicate VAT charges.
3. Time Limits: There are specific time limits within which VAT refund claims must be filed. These vary by country but generally follow annual or quarterly submission timelines.
4. Electronic Submission: For EU-based businesses, VAT refund applications must be submitted electronically via the tax authority portal of the business’s home country, simplifying the process and ensuring faster processing.
5. Refund from Non-EU Countries: The process for obtaining VAT refunds from non-EU countries can be more complex and may require direct interaction with the foreign country’s tax authority, often necessitating detailed documentation and sometimes local fiscal representation.

White list of VAT payers

The Polish VAT Act includes an amendment that mandates the creation of an electronic database known as the ‘white list’ of taxpayers. This list plays a crucial role in enhancing VAT compliance and transparency in business transactions.

Overview of the ‘White List’

As of 1 September 2019, the ‘white list’ of VAT payers has been operational in Poland. It serves as a comprehensive registry providing details about the VAT registration status of businesses. Specifically, the list includes:

• Entities that are not registered for VAT purposes or have been de-registered.
• Entities actively registered as VAT payers and those exempt from VAT.
• Entities whose VAT registration has been restored.

Additionally, the list is augmented with further details such as the bank account numbers that entities have reported to the tax authorities.

Importance of Using the ‘White List’

The ‘white list’ is pivotal for businesses engaged in transactions exceeding PLN 15,000. For such transactions, it is obligatory to settle payments through bank accounts listed in the ‘white list’. This measure is intended to prevent tax evasion and ensure that all transactions are traceable and transparent.

Consequences of Non-Compliance

Payments made to accounts not listed in the ‘white list’ bear significant tax implications:

• Such payments cannot be recognized as tax-deductible costs, affecting the financial statement of the paying entity.
• There is a joint and several liabilities for the VAT obligations of the supplier related to the transaction, proportional to the VAT due. This means that if a supplier fails to meet their VAT obligations, the buyer could also be held accountable for the unpaid VAT.

Notification Procedures

However, there are provisions to mitigate potential penalties:

• If a payment is mistakenly made to an account not on the ‘white list’, the taxpayer can notify the head of the tax office within seven days from the date the payment order was made. This notification can exempt the taxpayer from the sanctions.
• During periods of epidemic threat or state, such as those announced during the COVID-19 pandemic, this notification period is extended to 14 days.

VAT in Poland. Summary

VAT in Poland applies to all types of sales of goods and services. It is a source of revenue for the state budget. Exemptions from VAT tax on transactions apply only in certain legally defined situations. By introducing changes in regulations, the legislature ensures VAT and counteracts tax fraud.

You do not know how to find yourself in the VAT regulations?  Do you want to find out if you qualify for an exemption? Contact us! Our experts will answer your questions, provide support, and clarify any doubts.

VAT in Poland in questions and answers