VAT settlement by small taxpayers in Poland
Pursuant to the Act on Value Added Tax (Act on VAT), a small taxpayer generates gross sales (i.e. including tax) not higher than EUR 1.2 million during the fiscal year. The amount of EUR 45,000 applies to taxpayers that: run a brokerage company, manage investment funds, manage alternative investment funds, serve as agents, contractors or other persons who render services of similar nature, with the exclusion of pawnshops. The limit applicable in a particular fiscal year is calculated according to the average exchange rate announced by the National Bank of Poland on the first working day of October in the previous year.
Form of VAT settlement by small taxpayers
Small taxpayers that are active VAT payers may choose between 3 forms of VAT settlement. Those are:
- the so-called cash accounting (also known as the simplified method),
- quarterly VAT settlement without cash accounting,
- VAT under general accounting principles (monthly settlement periods).
Cash accounting of VAT in Poland
The use of cash accounting of VAT imposes on the entrepreneurs the obligation to document their sales with invoices – they must include an annotation “cash accounting”. It is mandatory since otherwise the contractors will not know that the invoice they received was issued by a taxpayer using that form of settlement. What is more, the contractor will not be able to deduct VAT on unpaid purchase invoice on their side until settlement. Deduction can take place only after payment of the liability. Such a model refers to actual settlements and cash flows and not only to accounting documents. In general opinion, cash accounting is then more favorable to entrepreneurs. All other elements of the invoice remain the same compared to standard VAT invoices.
In order to choose cash accounting, the entrepreneur is obligated to submit the VAT-R form at the tax office competent for the place of business. In section C1 of the document, one must tick the selection of cash accounting in point 40, also indicating the period in which the taxpayer intends to start using that settlement method. In forms submitted since 1.07.2022, the number of the said item is 46 and, analogously to the previous version of the VAT-R form, the taxpayer indicates the period in which they intend to start using the method.
The use of cash accounting imposes the obligation of settling VAT on a quarterly basis. Until a period of 12 months lapses from the date of VAT registration, entrepreneurs are obligated to settle with the tax office on a monthly basis (for 12 months).
The entrepreneur may choose the cash accounting method at the beginning of their operations, upon VAT registration, as well as later on by making an update. In the second case, it is necessary to file the VAT-R form at the tax office by the end of the month preceding the period in which the entrepreneur wants to start settling VAT with the cash accounting method. One should bear in mind that returning to the accrual basis is possible only after 12 months of using the cash accounting method.
The cash accounting of VAT has been defined in Art. 21 of the act on VAT. In case of small taxpayers using this method, the tax liability arises:
- on the date of receipt of the whole or part of the payment – in case of sales in favor of another active VAT payer, or
- upon receipt of the whole or part of the payment, not later than on the 180th day from the date of sales – in case of a delivery of goods or provision of services in favor of an entity other than in point 1.
The polish taxpayer loses their right to VAT settlement with cash accounting starting from the settlement for a month following the quarter in which the turnover limit was exceeded.
Moreover, small taxpayers that exceeded the said sales value limit must submit declarations for monthly periods starting from the settlement for the first month of the quarter:
- in which the amount was exceeded – if the limit was exceeded in the first or the second month of the quarter, and when the limit was exceeded in the second month of the quarter, the declaration for the first month is to be submitted by the 25th day of the month following the second month of the quarter,
- following the quarter in which the amount was exceeded – if the limit was exceeded in the third month of the quarter.
The said principle applies respectively to taxpayers that resigned from settling with cash accounting.
As it has been mentioned, small taxpayers that use the cash accounting of VAT submit declarations for quarterly periods by the 25th day of the month following each consecutive quarter.
Quarterly VAT settlement without cash accounting
The quarterly VAT settlement method can be selected by small taxpayers that did not opt for cash accounting. Taxpayers must notify the head of the tax office on the quarterly method of VAT settlement by the 25th day of the 2nd quarter for which a quarterly declaration will be submitted for the first time. However, the quarterly settlement of VAT (it also refers to taxpayers using the cash accounting method), pursuant to the current provisions of Art. 99 section 3a of the Act on VAT, cannot be used by taxpayers:
- registered as active VAT payers – for the period of 12 months starting from the month in which registration was made, or
- that made a delivery of goods mentioned in Appendix no. 15 to the Act on VAT in a particular quarter or the four quarters preceding it, unless the total value of such deliveries without the amount of tax did not exceed PLN 50,000 in any of the months from those periods, or
- that, in the particular quarter, imported goods under principles provided for in Art. 33a section 1 of the Act on VAT i.e., settled through a VAT declaration.
VAT under general accounting principles
A small VAT payer that has started their business activity is obligated to submit VAT declarations for monthly periods for 12 months starting from the month in which they registered. However, it is possible for them to use the cash accounting method for VAT settlement.
Entrepreneurs that want to switch from monthly to quarterly VAT settlements are obligated to notify the head of the competent tax office about it. The submission must be made with the VAT-R form within the proper deadline – not later than by the 25th day of the second month of the quarter that they wish to settle on a quarterly basis.
It is possible to switch from the monthly VAT settlement model to quarterly-based even 4 times in a year. Switching back from quarterly to monthly VAT settlements is possible not sooner than after 4 quarters.
Changes at the beginning of 2022
On 1 January 2022, a new Art. 99 section 3 became applicable and it expanded the possibilities related to quarterly settlements:
Taxpayers subject to lump-sum taxation on income of companies, referred to in Art. 28j of the Act of 15 February 1992 on corporate income tax (Polish Journal of Laws of 2021, items 1800, 1927 and 2105), provided that the value of sales (including tax) of those taxpayers did not exceed the equivalent of EUR 4,000,000 expressed in PLN in the previous fiscal year. However, the conversion of the amount expressed in EUR is made according to the average exchange rate announced by the National Bank of Poland on the first working day of October of the previous fiscal year, rounded to full PLN 1,000.
Since 1 January 2022, there has been a new wording of Art. 99 section 3a as well:
The taxpayer is not allowed to settle quarterly VAT in situations when, in a particular quarter, it was determined that contrary to the obligation referred to in Art. 19a of the Act of 6 March 2018 – the Entrepreneurs’ Law they did not ensure the possibility of payment with the use of a payment instrument pursuant to the Act of 19 August 2011 on payment services in every month in which actual business operations were carried out, especially in premises, outside the premises of the undertaking, or in a vehicle used to provide passenger transportation services.
Author: Magdalena Stachurska, Accountant at MDDP Outsourcing.
Sources:
Act of 11 March 2004 on value added tax.
Act of 19 August 2011 on payment services.
