Value-added tax, more widely known as VAT, affects almost every citizen, not just companies buying goods and services. VAT is an integral part of everyday purchases, affecting the prices of most products and services. Although everyone pays this tax, its importance is particularly significant for entrepreneurs running businesses. For whom it is one of the key elements of the tax system.
We’ve written a bit about this before, but in the situation of a limited liability company. So we encourage you to take a look at that post as well.
In this post, we want to introduce the basic aspects of VAT. We will discuss how this tax works, what its rates are and what obligations entrepreneurs have to account for it. We encourage you to read, which will help dispel any doubts and better understand the topic.
What is VAT?
It is a fee that is charged to both sellers and buyers. Its value is added to the net price of the transaction.
There are two main types of VAT: output and input.
Output VAT is the amount of liability that arises when a sales invoice is issued. It must be paid to the tax office. It is the tax that a business collects with the net price for the sale of its goods and services.
Input VAT is the amount by which a buyer can reduce his output VAT in his tax return. It is a tax that a company pays along with the net price for the goods and services it purchases.
What are the VAT rates?
The basic VAT rate in Poland is 23%, but there are also reduced VAT rates: 8%, 5% and 0%. The ZW (exempt) rate is not directly mentioned in the law, but it applies to certain exempt goods and services.
- The 8% rate covers food products, renovation and construction services, and some services provided by catering establishments.
- The 5% rate applies to certain processed food products, goods related to agricultural production, health care and services related to culture, sports and recreation.
- The 0% rate applies to the supply of goods to free zones or bonded warehouses, international transportation services, and services for the repair, refining, processing or transformation of goods.
In addition, the VAT law provides for a flat rate of 4% for taxi drivers and 7% for farmers.
How are the settlements handled?
The mechanism for settling VAT involves balancing input VAT against output VAT. It is the difference between the amount of output VAT (the tax added to the price of goods sold) and the amount of input VAT (the tax paid on the purchase of goods and services). The entrepreneur pays the difference to the tax office. However, it may happen that the input VAT exceeds the output VAT. In such a case, there is an excess, which can either be carried forward or applied for a refund.
When does the VAT liability arise?
When accounting for VAT, it is important to understand when tax liability occurs. The transfer of goods to the buyer or the completion of services immediately creates tax liability. This means that VAT must be settled, regardless of when the invoice is issued. An even earlier tax obligation occurs when payment for goods or services is received before they are delivered or rendered. In such a case, the tax obligation occurs when the payment is received.
If an invoice is issued in the month following the release of goods or the completion of a service, the date of sale on that invoice must be from the month in which the goods were released or the service completed. If payment has been received even earlier, it is on the date of receipt of payment.
It is different in the case of WNT (intra-Community acquisition of goods) and WDT (intra-Community supply of goods). In those cases the tax obligation arises upon issuance of an invoice, but no later than the 15th day of the month following the month in which the supply was made.
What are the deadlines?
The tax result for a given settlement period, i.e. the difference between output VAT and input VAT, must be included in the VAT return:
- In the case of monthly VAT settlements, the deadline for payment and submission of the JPK_V7M return is the 25th of the month following the month for which the return is submitted.
- When settling quarterly, the deadline for submitting the JPK_V7K declaration is the 25th of the month following the end of the quarter.
If the deadline for filing a VAT return falls on a Saturday, Sunday or holiday, it is postponed to the next business day.
Each day of delay in VAT payment results in interest, which is currently 14.50% per year.
Where and how to pay?
The VAT calculated in the submitted return must be paid to the relevant tax office. For corporations, it is the office with jurisdiction over the company’s place of business. For sole proprietors, the relevant tax office is the one according to the place of living.
The tax liability, VAT due and any penalty interest for late payment, must be paid by transfer to the entrepreneur’s individual micro-account. The day of payment is considered the day the taxpayer’s bank account is debited.
Does it consider all entrepreneurs?
Does every company have to be VAT registered? Well, no, it is possible to be exempt from VAT. What does this look like?
As a rule, as soon as a company is established, it is not automatically VAT registered. Registration has to be done separately, but it does not always have to be done right away. You can take advantage of the exemption, which is divided into two types.
Let’s introduce them:
- VAT exemption upon revenues:
Condition: revenues do not exceed in the current year 200 000 PLN. This limit is set proportionally in case of starting business during the year.
Exceptions: the limit does not include intra-Community supply of goods, sale of goods exempt from VAT, fixed assets. Some goods/services are excluded from this exemption. For them it is necessary to register for VAT from the first sale. You can find a list of these goods and services here. Also, companies based outside Poland must register for VAT right away.
- Subjective VAT exemption:
Condition: Provision of VAT exempt services/goods regardless of revenue (e.g. medical services, language teaching, financial services).
What if you exceed the exemption limit?
After exceeding the 200 000 PLN limit, each subsequent sale is subject to VAT. In this case, you must register into VAT by submitting a VAT-R form to the tax office.
Let’s recap this tax swirl
VAT is an important part of the tax system in Poland. It includes various rates and has its own specific accounting rules. Sometimes, to settle VAT, we need to perform quite complicated accounting tasks, while other times everything comes easily. VAT is a necessity for most companies, so it’s very possible for your company too. It is therefore worth knowing how this tax works, in what legal environment it operates, what it actually is.
This is where we can certainly help you. As an accounting company, we are fully prepared to tackle the challenges thrown at us, especially in the tax category. Years of experience allow us to operate smoothly in this subject in Poland. We help everyone, so if you are a foreigner here looking for accounting help – we are for you!
You can read more about VAT here.
