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Tax on Goods and Services (VAT) '10

 

  1. Legal basis
  2. Objective scope of taxation
  3. Taxable persons
  4. Reverse - Charge
  5. Intra-Community acquisition of goods
  6. Intra-Community supply of goods
  7. Deduction of input VAT
  8. Tax rates
  9. Taxable amount
  10. Tax liability (chargeability of tax)
  11. Place of supply
  12. Taxpayers exempt from taxation
  13. Payment of tax
  14. Procedure of VAT refund to foreign entities

1. Introduction

VAT was introduced in Poland in 1993. Since 1 May 2004 it has been harmonized with the common system of VAT binding in the Member States of the European Community. VAT is a turnover tax. Its main features are:

  • neutrality - the actual burden of tax rests upon final consumer,

  • universality - resulting in, on the one hand, charging VAT upon each stage of turnover and, on the other hand, levying VAT upon relatively wide range of goods and services,

  • double taxation avoidance rule - which is to prevent from double taxation of the same stage of turnover,

  • observation of competitiveness rule - which is to ensure the same taxation rules for all taxpayers in the Member States.

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2. Legal basis

Legal provisions governing VAT issues may be divided into two groups:

  1. Community law,
  2. National law.

Community law - in particular, Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.

National law - the act on Value Added Tax of 11 March 2004 r. (Journal of Laws No 54, item 535, with amendments) and over 30 executive decrees, of which the most important is Decree of the Minister of Finance of 24 December 2009 regarding execution of some provisions of the act on Value Added Tax (Journal of Laws No 224, item 1799) and Decree of the Minister of Finance of 28 November 2008 regarding reimbursement of tax to certain groups of taxpayers, issuance of invoices and manner of their storage and a list of goods and services which cannot enjoy tax exemptions (Journal of Laws No 212, item 1337 with changes).

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3. Objective scope of taxation

Of key importance to taxation is objective scope of taxation, which determines chargeable events. Each entity who professionally carries out the below stated activities:

  • supply of goods (meant as transfer of the right to dispose of tangible property as owner) effected for consideration,
  • supply of services for consideration; supply of services is meant as any transaction which does not constitute a supply of goods,
  • export of goods,
  • importation of goods,
  • intra-Community supply of goods,
  • intra-Community acquisition of goods,

is subject to taxation.

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4. Taxable persons

In principle, entities independently conducting economic activity, whatever the purpose or result of that activity, are considered taxable persons. The term “taxable persons” embraces natural and legal persons, organisational units having no legal personality (eg. civil, general partnerships, etc.).

The economic activity for VAT purposes is defined as each activity of producers, traders and persons supplying services including mining and agricultural activities and activities of the professions, even if such activity has been performed only once but in circumstances indicating an intention to continue. The term “economic activity” includes also exploitation of tangible or intangible property for the purpose of obtaining income there from on a constant basis.

Additionally, under certain circumstances entities purchasing services or goods may be considered taxpayers.

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5. Reverse - Charge

A reverse - charge mechanism, the purpose of which is to facilitate VAT collection, generally applies if a a certain activity is taxable in Poland but the supplier of goods or services does not have a residence or a permanent establishment for conducting economic activity in Poland.

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6. Intra-Community acquisition of goods

Intra-Community acquisition of goods (IAG) means a transfer of the right to dispose of goods as an owner, in a situation when the goods are transferred to Poland from another Member State. Taxation of IAG is based - as in case of a reverse-charge rule - on the tax (output VAT) calculation and settlement by a purchaser. The tax in question may simultaneously be recognized as input VAT subject to deduction from output VAT.

IAG is subject to taxation at the rates applicable to the domestic supplies of the same goods.

As of 1 December 2008 there is a possibility to apply a so called “procedure of a consignment store”. The basic underlying assumption for the procedure is that transfer of goods by a EU entity not registered in Poland for the VAT purposes to a consignment store located in Poland results in arising of the tax obligation on the IAG not on the part of that supplier but on the part of the Polish taxpayer (the purchaser of goods) registered as a VAT EU taxpayer. It should be pointed out that that the moment of the goods’ delivery (transfer of owner’s rights to these goods) should be the moment of the goods’ collection from the store by the purchaser. The solution simplifies VAT settlement of such transactions both in a case of the goods transferred to a consignment store located in Poland and in case of goods transferred to such a store located on the territory of another EU country. However in Poland the procedure applies only to goods destined for production or to be used in services’ provision (is not applicable in case of trading goods).

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7. Intra-Community supply of goods

Intra-Community supply of goods (ISG) is a transfer of the right to dispose of goods as an owner, if the goods are dispatched from Poland to another Member State. In the normal course of events ISG in Poland is followed by IAG in a Member State to which the goods are dispatched.

ISG is subject to 0% VAT rate. Although invoices issued with relation to ISG do not include VAT, the supplier is entitled to deduct input VAT suffered upon purchases of goods and services associated with ISG.

In case of ISG, a consignment store procedure can also be applied. However a condition sine qua non is that a EU purchaser is a VAT taxpayer obliged to indicate the performed transfer of goods in a EU country being a country of a transfer finalisation or a country of dispatch in the same month in which on the part of the Polish taxpayer a tax obligation on the delivery arose.

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8. Deduction of input VAT

The distinctive feature of VAT is neutrality. A taxpayer is therefore entitled to deduct its input VAT, i.e. VAT incurred upon purchases, from output VAT resulting from its sales. Surplus of output VAT over input VAT constitutes the tax payable to the State Treasury. In turn, surplus of input VAT over output VAT, depending on a taxpayer’s decision, is subject to direct repayment from tax office or decreases output VAT in the next VAT settlement periods.

The Polish VAT law provides for refunds of the surplus of input VAT over output VAT within 60 days of the day of submitting tax return. Under certain circumstances the period may be shortened 25 days. The entities that did not sell in the given settlement period shall receive the refund within up to180 days unless they provide a tax office with an adequate guarantee (in the form e.g. bank guarantee or a bill of exchange endorsed by a bank).

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9. Tax rates

Polish tax law provides for 4 VAT rates. The basic rate is 22%, which is applied to majority of goods and services. Other rates:

  • 7% - applies to specific goods and services, e.g. goods related to health protection, groceries, services of hotels, folk art articles,
  • 3% - applies to supply of some farm produce; this rate is binding temporarily - until 31 December 2010.

The rate of a special significance is a 0% rate. It is mainly applicable to export, intra-Community supply of goods and international transport services. Taxpayers enjoying 0% rate are not deprived of the right to deduct input VAT suffered upon purchases related to the activities subject to this rate.

Polish tax provisions provide also for some exemptions from VAT. Among the activities subject to such exemptions are financial, educational, health and cultural services. The exemption excludes however deduction of input VAT related to the exempt transactions.

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10. Taxable amount

The taxable amount (tax base), along with VAT rate, determines the value of output VAT. However, the amount of VAT payable to the tax office corresponds to the surplus of output VAT over input VAT.

Taxable amount is turnover, which is the amount due from sales reduced by the amount of tax. The taxable amount should include everything which constitutes the consideration to be obtained for the supplies made including subsidies directly linked to the price of such supplies.

In respect of importation of goods, the taxable amount constitutes the value of goods determined for the customs purposes, increased by customs duties due. If the imported goods are subject to excise tax, the taxable amount is additionally increased by the excise tax.

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11. Tax liability (chargeability of tax)

As a rule, tax liability arises at the moment the goods are delivered and services are performed.

The Polish VAT law provides however for a number of exceptions to the above rule. Tax liability may therefore arise:

  • at the moment of issuing invoice, not later however than on the 7th day after the day of delivery of goods or service provision, if the transaction was to be confirmed by invoice,
  • at the moment of receipt of payment, including partial one, before delivery of goods or performing the service,
  • at the moment of receipt of the payment, in whole or in part, however not later than upon the lapse of the time limit for payment specified in the contract or invoice - in the case of the lease services or transactions of similar nature.

With regard to ISG and IAG, tax liability arises on the 15th day of the month after the month of supply. If however an invoice had been issued before this term, the tax liability arises at the moment of issuing the invoice.

In case of import of services (services purchased by a Polish VAT taxpayer who is obliged to settle VAT with reference to the services) tax liability arises with the moment of provision of the services considering that:

  • services for which consecutive payment or settlement dates are agreed are deemed to be provided with the end of each settlement period (e.g. month, quarter of a year),
  • on-going services to be rendered in a period exceeding one year are deemed to be provided with the end of each tax year till the moment of cessation of the service rendering.

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12. Place of supply

Provisions defining place of supply are of great importance as regards taxation of international transactions. They directly indicate the country entitled to levy VAT on a given transaction. A given Member State may impose VAT only on those transactions, which according to relevant provisions, are executed on its territory.

In the case of goods dispatched or transported, place of supply is defined as the place in which the goods are located immediately before their dispatch or transportation. Supply of goods which are not transported is considered to be effected in a place where the goods are at the moment of supply. In the case of the goods installed or assembled by a supplier or for his benefit, the place of installation or assembly is considered to be the place of supply.

Following the amendment to Council Directive 2006/112/EC on the common system of value added tax, starting from January 1st, 2010 rules for determination of a place of taxation in case of services have been changed also in Polish provisions. First of all a principle was introduced that in case of majority of services rendered by Polish taxpayers for business entities from abroad as well as in case of services purchased by Polish taxpayers from business entities from abroad - the VAT is settled by the purchaser of the service. In case of services rendered by Polish taxpayers for entities without a status of VAT taxpayers , the services as a rule are settled at the local (Polish) VAT rate.

The VAT provisions provide however for many exceptions in this respect:

  1. services connected with immovable property, including the services rendered by estate agents and experts, accommodation in hotels and holiday centres and preparing and coordinating construction works, such as services of architects and of firms providing onsite supervision - the place of supply is the place where the property is situated;
  2. restaurants’ services and catering are subject to taxation in a place where they are actually carried out;
  3. short-term rental of transport means is subject to taxation in a place where the transport means are actually placed at a customer’s disposal; a short-term rental is disposing of transport means incessantly in the period of 30 days, and in case of sailing units - 90 days.

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13. Taxpayers exempt from taxation

Taxpayers who recorded in the previous tax year the turnover not higher than 100.000 PLN (the limit is in force in 2010, and starting from 2011 shall increase to PLN 150.000) may enjoy tax exemption. Therefore, despite performing taxable activities within the framework of their business activity, they are not bound to charge VAT upon their sales. Simultaneously, however, they would not be entitled to deduct input VAT.

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14. Payment of tax

As a rule VAT is settled on a monthly basis. However it is possible to choose a possibility to settle VAT on a quarterly basis. The possibility primarily envisaged only for so called “small taxpayers” with turnover in the previous year not exceeding EUR 1.200.000 as of 1 January 2009 is accessible for all taxpayers .

Tax returns shall be submitted to a relevant tax office up to the 25 day of the month following each month or each quarter. Up to this date a payment of tax for a given settlement period shall be executed into the account of the tax office. Starting from January 1st, 2009 entities other that “small taxpayers” are entitled to submit quarterly returns but are obliged to pay tax - either in the form of a lump sum or resulting from the settlement - on a monthly basis within 25 days of the month following the month settled.

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15. Procedure of VAT refund to foreign entities

The rule being in force from January 1st, 2010 is that VAT is refundable to foreign entities on their application if such VAT results from invoices documenting goods or services purchased in Poland or from customs duty documents (in case of import of goods) and if these goods or services were used by the foreign entities to undertake activities authorising to decrease output VAT by the amount of input VAT on the territory of the State in which they settle VAT or a tax of a similar nature. It should be underlined that non-EU taxpayers are eligible for VAT refund subject to reciprocity rule.

The procedure of VAT refund to foreign entities is set out in the Regulation of the Minister of Finance dated of 24 December 2009 (hereinafter referred to as “the Regulation”). Pursuant to this Regulation in order to obtain VAT refund the following conditions have to be met jointly within the period covered by the application:

  • the applicant shall not have its place of residence, registered seat nor permanent place of activity in Poland,
  • the applicant shall be registered as VAT (value added tax) or similar tax taxpayers in the country of its residence, registered seat or permanent place of activity,
  • the applicant shall not be registered as VAT taxpayer in Poland,
  • the applicant shall not perform within the territory of Poland activities being subject to Polish VAT (apart from certain activities, mentioned in the Regulation, including, among others, transactions settled pursuant to reverse charge rule).

An entity authorised to apply for VAT refund, having its seat or residence in other than Poland EU member state, submits the application to the Second Tax Office Warszawa Śródmieście via electronic communication through tax authorities in its state.

An entity from another country (from outside EU) submits an application in writing on a form envisaged in the Regulation directly to the Second Tax Office Warszawa Śródmieście.

The application for VAT refund may refer to periods not shorter than three months and not longer than one tax year. The application concerning any given year has to be filed until 30 September of the following year. The amount of VAT to be refunded may not generally be lower than the equivalent in PLN of EUR400(if the application refers to a period shorter than one tax year but not shorter than 3 months) or EUR50 (if the application refers to the whole tax year or a period shorter than 3 last months of the year). The application has to be prepared in the Polish language. The application should be filed with the Head of the Second Tax Office - Warszawa Śródmieście along with the following:

a. in case of applications submitted electronically:

  • information specified in Annex 1 to the Regulation,
  • copies of invoices or customs duty documents, if the tax base specified on the invoice or the customs duty document is higher than equivalent in PLN of EUR 1.000 or the tax base specified on the invoice documenting purchase of fuel is not lower than EUR 250,

b. in case of applications in writing on the form envisaged in the Annex 2 to the Regulation

  • originals of VAT invoices and/or customs documents, from which VAT refund results, and
  • the original of a certificate (hereinafter referred to as “the Certificate”) confirming that the entity applying for VAT refund is registered as the VAT taxpayer in the country of residence, registered seat or permanent place of activity.

The Certificate should be issued by tax authorities of the country of residence, registered seat or permanent place of activity of the applicant. The form of the Certificate constitutes an appendix to the Regulation. If local tax authorities use different forms of certificates they are generally accepted, if these forms contain all information required by the Polish form.

According to the Regulation the VAT should be refunded within four months from the date of filing the application. However the above mentioned term may be extended if the application requires additional verification.

The amount of VAT refunded is transferred in PLN to the bank account of the applicant. If the VAT is transferred to an account opened in a foreign bank, the Polish tax authorities do not bear banking charges related to the transfer.

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Last update: January, 2010


 

Prepared for the Polish Information and Foreign Investment Agency by

Marciniuk i Wspólnicy Sp. z o. o. - Tax Advisers


Polish Investment and Trade Agency

Krucza St. 50

00-025 Warsaw


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