Michał Bernat

Changes in VAT treatment of healthcare services from 1 January 2011

Under amended regulations, starting 1 January 2011 the VAT exemption for healthcare services would be limited to services that meet a new statutory definition of “medical services.”

The lower house of the Polish parliament adopted an amendment to the VAT Act on 24 September which may have a significant effect on VAT treatment of healthcare services.

Under the new regulations, a VAT exemption would be available for two types of healthcare services:

  • medical services, defined as involving preventive medicine, or maintaining, saving, restoring or improving health, and the supply of goods or services strictly related thereto, performed by healthcare facilities, and
  • medical services, defined as involving preventive medicine, or maintaining, saving, restoring or improving health, performed by physicians, dentists, nurses, midwives, other persons practising a medical profession on the basis of specific regulations, or psychologists.

Under the new definition, the ability to exempt medical services from VAT will no longer be determined by the statistical classification of the services, but by the nature and purpose of the specific service and the legal status of the service provider.

The new provisions also introduce the entirely new rule that the supply of goods and service closely related to medical services will not enjoy a VAT exemption if the goods or services are not truly necessary in order to perform the related medical services, or if the main purpose of providing the related goods or services is for the provider to generate additional income through “competitive performance of such activities for taxpayers not enjoying such exemption.” Introduction of this restriction, although consistent with EU regulations, represents a significant change in the rules for VAT treatment of healthcare services in Poland.

It is likely that if the amendment is enacted in the wording adopted by the Sejm, the scope of medical services subject to the VAT exemption will be narrower. For example, contrary to the current practice of some taxpayers, the VAT exemption will generally not be available for the service of collecting and storing stem cells, which the European Court of Justice has held in recent rulings is subject to VAT because it lacks an immediate therapeutic purpose.

It will not be possible to assess fully the changes in VAT treatment of healthcare services until the practice in applying such rules develops. For now it is important for taxpayers to review the healthcare services they provide and to prepare for financial, legal and organisational changes that may be with required under the new VAT regulations.

This amendment to the VAT Act, which would go into effect on 1 January 2011, still requires consideration by the Senate (which may revise the bill during its session on 20–22 October 2010) and the signature of the president.