In common with all other EU countries Poland operates a consumption tax known as value-added tax (VAT). VAT is levied on the supply of most goods and services. Businesses that carry on activities that are subject to VAT are obliged to register as VAT-taxpayers and file monthly VAT returns.
As a rule VAT is not a cost for most businesses, since the tax burden can be passed on to customers. Since business customers can pass the above burden further, the ultimate cost rests with a non-business user of goods and services. This is achieved due to the mechanism of the VAT calculation. The above mechanism allows, subject to some exceptions, recovering input VAT (included in the price of the supplies purchased) provided that one is a business entity registered as a VAT-taxpayer. Detailed rules of Polish VAT are outlined below.
VAT Scope
Polish VAT applies to the following activities:
- supply of goods and services within the territory of Poland;
- export of goods outside the territory of the EU;
- import of goods from countries that do not belong to the EU;
- intra-community supplies of goods (i.e. “export” of goods to countries that belong to the EU)
- intra-community acquisitions of goods (i.e. “import” of goods from countries belonging to the EU);
VAT Rates
The VAT rates are 22% (standard rate), 7%, 3%, 0% and exemption. The standard 22% VAT rate applies generally to the supply of all goods and services, except for those which are covered by special VAT provisions providing other rates or treatments.
Supplies covered by a reduced rate of 7% include, among others, supplies of pharmaceutical products and passenger transport services. Furthermore, the 7% rate applies to the supply, construction, renovation and alteration of apartments which do not exceed 150 square metres and houses which do not exceed 300 square metres. If a dwelling exceeds these limits, the area up to the limits is taxed at 7% and the standard 22% rate applies to the excess area. However, the supply of an apartment or a house in the non-new real estate market is exempt from VAT.
Supplies of certain agricultural products are subject to VAT at 3%. Furthermore, certain activities are zero-rated, for example export of goods to countries outside the EU, as well as the international transport of goods (i.e. transport to or from countries outside of the EU). Supplies covered by VAT exemption include (but are not limited to) certain financial services (such as banking services) as well as insurance and educational services. Numerous services, if rendered to a foreign customer, are not subject to Polish VAT while a Polish VAT taxpayer is entitled to deduct input VAT paid in connection with rendering such services.
VAT Calculation
Based on the fundamental VAT rule, the VAT due (payable to the tax office) equals the VAT on the output less the VAT already paid on the inputs. Input VAT can be deducted from output VAT when a VAT payer receives an invoice for goods or services they have purchased. However, input VAT cannot be deducted unless a purchased supply is linked to the VAT taxpayer’s activities that are subject to VAT. Furthermore, deductibility of input VAT is restricted with respect to purchasing certain goods and services. For example, only 60% of the input VAT on a passenger car purchase can be deducted and the deduction cannot exceed PLN 6,000 (approx. EUR 1,680) per car.
Subject to numerous conditions, the supplier’s output VAT can be reduced when receivables resulting from VAT-able sales turn out to be uncollectable. In these cases the other party to the transaction is obliged to correspondingly decrease the input VAT, or if this is not enough, increase the output VAT.
VAT Penalty
If the tax authorities demonstrate that a taxpayer submitted a VAT return including understated VAT liability or overstated input tax, they can assess 30% VAT penalty calculated on the amount of the understatement (or overstatement).
Refunds
Polish VAT Law allows direct refunds when input VAT (available for deduction) exceeds output VAT.
There are also provisions concerning VAT refunds for foreign businesses purchasing goods and services from Polish VAT payers as well as VAT refunds for foreign tourists. In both cases, numerous conditions have to be met in order to obtain a refund. Specifically, refunds are only available for residents of countries that have VAT and where Polish residents are eligible for VAT refunds (the reciprocity rule).
