Who must pay VAT
Find out when you have to pay VAT and when you can benefit from tax exemption. Read about the entitlements that a small VAT payer has.
Who is a VAT payer
As an entrepreneur, you are, as a rule, obliged to register and account for VAT. It is a tax levied at each stage of the marketing of goods or services. Its value is added to each transaction.
Remember! You pay VAT independently of PIT.
The following are subject to VAT:
- sales of goods and services in Poland
- exportation of goods
- importation of goods
- intra-Community acquisition of goods
- intra-Community supply of goods.
The list of entities registered for VAT, i.e. the so-called White List, is maintained by the head of the National Revenue Administration. It is an essential tool for verifying business partners.
Search for a company in the List of VAT payers.
Find out more about the list and checking the status of your business partners (PL).
Example
Łukasz runs a one-person business which is taxed according to the tax scale. In May, he bought goods for a gross amount of PLN 7,380 and sold goods for a gross amount of PLN 12,300. In the VAT return for May, he will show PLN 2,300 of output VAT (PLN 10,000 x 23%) and PLN 1,380 of input VAT (PLN 6,000 x 23% = PLN 1,380).
He can deduct the input VAT included in the purchase price (2,300 – 1,380) from the output VAT due. The VAT liability for the month of May will amount to PLN 920.
Irrespective of VAT, Łukasz must pay income tax. His income in May was PLN 4,000 (PLN 10,000 – PLN 6,000). He will pay PLN 480 in advance income tax on this (PLN 4,000 x 12%).
Active VAT payer versus exempt VAT payer
VAT payers can be divided into two groups:
- an active VAT payer is one who pays tax
- an exempt VAT payer is one who benefits from either a complete VAT exemption (due to a low taxable turnover of up to PLN 200,000) or from the sale of VAT-exempt goods and services (carries out exclusively sales transactions exempt from VAT under Article 43(1) of the VAT Act).
Compare the rights and obligations of an active VAT payer and an exempt VAT payer
Active VAT payer |
Exempt VAT payer |
|
|---|---|---|
Obligations |
|
|
Rights |
|
|
Read:
Complete VAT exemption
You can benefit from a complete VAT exemption if your taxable turnover (sales) did not exceed the PLN 200,000 threshold in the previous year.
Important! The sales threshold does not include the amount of tax and:
- intra-Community supply of goods and distance selling from the national territory and distance selling within the national territory
- sales of VAT-exempt goods and services, with the exception of, among others, transactions relating to real property
- sales of goods that are included in tangible and intangible assets subject to amortisation and depreciation.
If you start your business during the year, you do not have to register for VAT if the expected taxable turnover does not exceed – in proportion to the period of sale – the equivalent of PLN 200,000.
To calculate the ratio:
- you multiply the number of days from the start of your business to the end of the year by the applicable VAT threshold (PLN 200,000)
- you divide the resulting number by the number of days in the year.
Example
Józef started his business on 2 May 2020, thus there were 244 days left until the end of the year. In his case, the exemption threshold is: (200,000x244)/365 = PLN 133,698.63
Józef should register for VAT before the sale after which he will exceed this threshold.
When you are not entitled to complete VAT exemption
You must pay VAT from the start of your business, regardless of the taxable turnover, if you are engaged in the sale of goods or services listed in the VAT Act.
Remember! In this case, you must account for VAT even if you do not exceed the PLN 200,000 sales threshold.
Complete VAT exemption is not available if, among others:
you sell:
- goods listed in Annex 12 to the VAT Act (for example, precious metals and precious metal scrap, jewellery)
- goods subject to excise duty, with the exception of: electricity, tobacco products and passenger cars other than new cars, classified under income tax legislation as depreciable fixed assets
- in certain cases: buildings, structures or parts thereof
- building sites
- new means of transport
over the Internet such goods as:
- cosmetic and toilet preparations
- computers, electronic and optical products
- electrical appliances and non-electrical household appliances
- machinery and equipment n.e.c.
wholesale and retail parts for:
- motor vehicles
- motorbikes
you supply the following services:
- legal
- consultancy (except for agricultural consultancy)
- jewellery
- debt collection, including factoring
- you do not have your registered office in Poland.
VAT-exempt goods and services
You are exempt from VAT, irrespective of your taxable turnover, if you supply the services or sell the goods listed in Article 43(1) of the VAT Act. You then benefit from the sale of VAT-exempt goods and services (due to the objects of your business).
The exemption only applies if you exclusively supply services such as:
- medical care services for the prevention, preservation, rescue, restoration and improvement of health; if you are a physician, dentist, nurse, midwife or psychologist
- private tutoring services at pre-primary, primary, secondary and tertiary levels; if you are a tutor/teacher
- foreign language teaching services
- financial services, including: investment fund management; insurance; the provision of sureties, guarantees and other collateral for transactions; and the granting of loans involving financial instruments.
Example
Agnieszka runs a private dental practice, supplying services exempt from VAT. The exemption depends on the type of services, not the amount of turnover. Agnieszka is not required to register for VAT, does not file VAT returns and does not pay tax.
Voluntary VAT
You can waive the complete VAT exemption (up to PLN 200,000) at any time and pay VAT on a voluntary basis. Such a step may be worthwhile if you are planning larger purchases and want to deduct input VAT.
If you are already registered for VAT, you must notify the head of the tax office before the beginning of the period (month or quarter) in which you intend to waive your exemption.
If you are just starting your business, you must file the notification before you perform your first taxable activity.
Read how to register for VAT.
Example
Jacek has been running a business since 2018. He benefits from a complete VAT exemption due to a sales threshold below PLN 200,000. From September 2020, he would like to pay VAT to deduct tax on his large planned purchases. He must notify the head of the tax office of this before 1 September.
If you waive your VAT exemption on a voluntary basis or lose it once you have exceeded the turnover threshold, you can reclaim the exemption no sooner than after one year (from the end of the year in which you lost the right to the exemption or waived the exemption).
What to do when you exceed the exemption threshold
Once you exceed the PLN 200,000 threshold, any subsequent sales are subject to VAT. You should register as a VAT payer.
You need to register as a VAT payer by submitting a VAT-R form if you have first benefited from VAT exemption and then:
- you lose the right to continue to benefit from the exemption (you have exceeded the sales threshold)
- you want to waive the exemption
- you intend to carry out taxable sales (other goods or services that are not exempt from VAT)
Register:
- before the date on which the first sale of goods or services other than VAT-exempt ones is made
- before the day on which you lose the right to exemption, i.e. you exceed the threshold of PLN 200,000 net turnover
Example
Artur has been running a business for two years. In previous years, he did not exceed the PLN 200,000 threshold, so he benefited from the complete VAT exemption. In July 2020, he calculated that his turnover had amounted to PLN 198,000 since the beginning of the year. Before making further sales, he submitted a VAT-R registration form in which he registered as an active VAT payer.
Read how to register for VAT.
Settlement of a small VAT payer
A small VAT payer is an entrepreneur whose turnover, including the amount of tax, did not exceed the equivalent of EUR 2 million in the previous fiscal year.
Please note! The limit of EUR 2 million applies as of 1 July 2023. Until then, the limit was EUR 1.2 million.
Important! A different threshold applies to an entrepreneur operating, among others, a brokerage firm or managing an investment fund. They are a small VAT payer if their amount of commission or other forms of remuneration (including the amount of tax) did not exceed the equivalent of EUR 45,000 in the previous fiscal year.
EUR conversions are made at the average exchange rate announced by the National Bank of Poland on the first working day of October of the previous year, rounded up to the nearest PLN 1,000.
A small VAT payer can enjoy privileges that are not enjoyed by larger entities. They have the right to choose:
- the cash accounting scheme for VAT
- quarterly, instead of monthly, VAT accounting.
If you choose the cash accounting scheme, you must also account for VAT quarterly. The exception is the period of the first 12 months from the date of registration for VAT, when you must account for VAT monthly.
Example
Anita registered for VAT in July. She meets the conditions for a small VAT payer, so she chose the cash accounting scheme. She must submit the JPK_V7M monthly for the first 12 months. After the lapse of this period, she will have to submit the JPK_V7K quarterly.
If you opt for quarterly accounting, you do not have to apply the cash accounting scheme.
If you lose your status as a small VAT payer during the year (after exceeding the sales threshold of EUR 2 million as of 1 July 2023):
- You switch from quarterly to monthly accounting. You submit monthly tax returns starting with the settlement for the first month of the quarter:
- in which you exceeded the threshold – if this occurred in the first or second month of the quarter; if the excess occurred in the second month of the quarter, you must file the return for the first month of the quarter by the 25th day of the month following the second month of the quarter
- following the quarter in which you exceeded the threshold – if the excess occurred in the third month of the quarter.
- You will only lose the right to apply the cash accounting scheme to VAT from VAT settlement for the month following the quarter in which you exceeded the threshold.
Example
Olaf previously held the status of a small VAT payer, which meant that he applied the cash accounting scheme to VAT and he accounted for VAT quarterly. In February, he lost his status of a small VAT payer as he exceeded the turnover threshold. In this case, he is allowed to apply the cash accounting scheme to VAT until the end of the first quarter. However, he is obliged to account for VAT on a monthly basis already for January and February. He files the JPK-V7M for January and February by 25 March. If Olaf lost his small VAT payer status in March, he would file a monthly VAT return for April only (due 25 May).
Cash accounting scheme – what it is and who can use it
VAT accounting means that, as a rule, you show invoices issued in a given accounting period in your tax return for that period. It does not matter whether the invoices have been paid or not.
You must pay the output VAT even if you do not receive payment from your business partners.
The cash accounting scheme is an exception to this rule. It means that if you sell goods or supply a service to another business, you only pay VAT when you yourself receive payment for the invoice. If you sell goods or supply a service to a person who does not carry on business, you must pay VAT when you receive payment, no later than 180 days after the goods are issued or the service is supplied.
Example
Joanna is a small VAT payer, applying the cash accounting scheme to VAT. In May, she invoiced PLN 10,000 + PLN 2,300 VAT. However, her business partner did not pay her until July. This means that she will pay PLN 2,300 in output tax in her July settlement. If she settled in the standard way, she would have to pay tax in the May settlement, regardless of whether her business partner paid the invoices.
You must notify the head of the tax office of your choice of the cash accounting scheme by the end of the month preceding the period in which you start cash accounting. You can only waive the cash accounting scheme after 12 months of its application.
It is the most convenient to waive the cash accounting scheme and account for VAT quarterly in the last month of a given quarter. You then file the monthly tax returns from the month following that quarter, for the first month of the following quarter.
To declare the choice of the cash accounting scheme and to waive it use the VAT-R form.
However, even a small VAT payer is not allowed use the cash accounting scheme in the following cases:
- intra-Community supply of goods
- importation of services
- supply of goods following the transfer of a single-purpose voucher
- the issue of goods by the principal to the commission agent under a contract of commission
- transfer, by order of a public authority, of ownership of goods in exchange for compensation
- enforced supply of goods as referred to in Article 18 of the VAT Act
- the supply of services on behalf of courts related to court or pre-trial proceedings, with the exception of the services under Article 28b of the VAT Act, which constitute importation of services
- the supply of tax-exempt insurance services, among others, the granting of loans, loan intermediation
- receipt of grants, subsidies and other contributions of a similar nature.