New rules for settlement of VAT


New VAT rules have been in force in Poland since the beginning of 2014. The new rules still raise certain doubts, so it is worthwhile to re-examine the most important changes concerning when the obligation to pay VAT arises, the tax basis, and invoicing.

I. VAT obligation

General rule

One of the key changes involves the new rules for establishing the time when the tax obligation arises. From the beginning of 2014, the decisive moment is the date of performance of the taxable activity, i.e. the date of delivery of the goods or performance of the service. In this respect, a service is also regarded as performed in part when partial payment is provided for.

Settlement periods

A supply for which consecutive periods for payments or settlements have been established is regarded as made at the end of each payment or settlement period. If no payment or settlement period ends during an entire year, the supply is deemed to be made at the end of each year, until the supply is completed.

Special timing

The amendment to the VAT Act repealed most of the regulations in force through the end of 2013 concerning special times at which the VAT obligation arose. New rules were introduced concerning the time when the VAT obligation arises with respect to such activities as:

  • Supply of electricity, heat, cooling and piped gas
  • Telecommunications and radio communications services
  • Lease, tenancy, finance leasing and similar services
  • Ongoing legal and office services
  • Communal waste management services listed in items 140–153, 174 and 175 to Annex 3 to the VAT Act.

For these items, the VAT obligation arises upon issuance of an invoice, but no later than the payment deadline (except for services which fall under Art. 28b of the VAT Act, i.e. business-to-business services constituting export of services).

In turn, the date of issuance of the invoice generally determines the time when the tax obligation arises for:

  • Provision of construction or construction/installation services
  • Supply of printed books (former item 58.11.1 of the Polish Classification of Goods and Services—PKWiU)—with the exception of maps and flyers—as well as newspapers, magazines and periodicals (PKWiU former 58.13.1 and 58.14.1)
  • Printing of books (former PKWiU 58.11.1)—with the exception of maps and flyers—as well as newspapers, magazines and periodicals (former PKWiU 58.13.1 and 58.14.1), except for B2B services constituting import of services

unless the taxpayer failed to issue an invoice or issued the invoice late, in which case the VAT obligation arises upon the deadline for issuing the invoice. In this respect, the tax obligation arises according to the foregoing special rules only upon issuance of a VAT invoice:

  • To another payer of VAT or comparable tax or a legal person which is not a payer of such tax
  • For mail orders from within Poland
  • For intra-community supply of goods to a taxpayer other than one indicated above
  • For prepayment on the foregoing transactions.

In consequence, in the case of provision of services of this type to an individual who is not a VAT payer, the tax obligation should be determined under general rules.

However, the special timing of when the tax obligation arises which was expressly provided for licences and transport services was eliminated, and now these will be settled under general rules.

Prepayment

If the taxpayer receives a partial or total prepayment prior to delivery of the goods or performance of the services, the date of the prepayment will be the date when the tax obligation arises. There is an exception for the services indicated above for which the VAT obligation arises upon the date of issuance of the invoice but no later than the payment deadline (e.g. for telecommunications services). In those cases, prepayment made before performance of the service will not require issuance of an invoice, create a tax obligation, or give the buyer of the services the right to deduct input VAT.

In practice, it is not the invoice that determines the proper time when the VAT obligation arises, but the documents confirming the delivery of the goods or performance of the services (typically the delivery note in the case of goods or the acceptance protocol in the case of services).

II. Tax basis

General rule

From 1 January 2014, the VAT Act contains a new definition of the tax basis. The basis for VAT is everything that constitutes payment which the supplier of the goods or services received or should receive for the sale from the buyer or a third party, including grants, subsidies or other additional payments of a similar nature directly affecting the price of the goods or services supplied by the taxpayer. The tax basis is therefore increased to reflect additional costs (e.g. commissions and packaging, transport and insurance costs) which the seller charges the buyer. However, the VAT basis is not affected by such items as payments for unspecified activities not making up the price (e.g. a deposit for contractual returns) and grants or subsidies unrelated to the price.

Supply of goods without consideration

From 2014, in the case of free supplies, the tax basis is the purchase price for the goods or similar goods, or if there is no purchase price, the manufacturing cost determined as of the time of supply of the goods. Therefore, in the case of supply of goods without consideration, the basis for VAT is the market price as of the delivery date, not the historical price.

In the case of free supply of goods where the acquirer has a right to deduct VAT on constitutive elements of the goods, the VAT basis is the value of the constitutive elements.

Provision of services without consideration

In the case of free provision of services, the VAT basis is the cost of performing the service incurred by the taxpayer.

Brokerage activities

For brokerage activities arising out of management of investment funds, under an agreement of agency, mandate, intermediation, commission or other services of a similar nature, the basis for VAT is everything that constitutes the payment which the service provider receives. Consequently, the tax basis for intermediation activities is no longer determined by the amount of the commission.

Re-invoicing

The rules have been clarified for determination of the basis for VAT in the case of re-invoices for goods or services issued in the taxpayer’s own name to another taxpayer, and for activities performed for and on account of another taxpayer. In the latter case, the amounts received are not included in the basis for VAT and do not increase the value of such basis. From the beginning of this year, the general rules also apply to a commission agreement and to an agreement in which the buyer of goods or recipient of services is the taxpayer.

Import of services

The basis for VAT is determined according to general rules also in the case of import of services, supply of goods where the buyer is the taxpayer, and provision of services for which the service recipient is the taxpayer. However, such basis is not determined when the value of the service was included in the basis for taxation of intra-community acquisition of goods or increases the customs value of imported goods, or if the tax on goods which are assembled or installed within the country, with or without test start-up, was collected in full from the taxpayer upon the import of the goods from the taxpayer making the acquisition. If however the amount of VAT on the import of goods would be lower than the tax due for supply within Poland, the difference should be settled by the acquirer.

In-kind performance

In the case of in-kind performance for which no price is set (e.g. barter), the VAT basis is not the market value of the goods or services less tax, but the value of what was provided in exchange, i.e. the actual value of the payment.

Intra-community acquisition of goods

There are special rules for determining the VAT basis in the case of intra-community acquisition of goods. Whether acquiring goods from an EU-based seller, or receiving goods from a consignment warehouse, the VAT basis will include everything that constitutes the payment that was or is to be obtained by the supplier of the goods or services for the sale, from the buyer, service recipient or third party, including grants, subsidies or other similar fees, directly affecting the price of the goods or services provided by the taxpayer. The VAT basis includes taxes, duties, fees and other similar amounts, such as commissions, packaging and transport costs and insurance, collected by the supplier of the goods or services from the buyer or service recipient. However, for intra-community acquisition of goods, the VAT basis does not include amounts constituting a reduction in price in the form of a rebate for early payment, rebates and discounts reflected at the time of sale, or amounts received from the buyer or service recipient as reimbursement of documented expenditures incurred for and on behalf of the buyer or service recipient and temporarily recorded by the taxpayer in its tax records.

Meanwhile, the VAT basis for intra-community acquisition of goods is reduced by:

  • Amounts of rebates and price discounts made after the sale
  • The value of returned goods and packaging (except where packaging is returned late)
  • Full or partial payment returned to the buyer before the sale, if the sale did not occur
  • The value of returned grants, subsidies and other additional payments of a similar nature.

The VAT basis on intra-community acquisition of goods also does not include the value of packaging if the taxpayer supplies goods in returnable packaging, charging a deposit for the packaging or providing for such a deposit in the contract for supply of the goods.

In the case of transfers of goods between warehouses (when good which are not the subject of sale are transferred between EU countries), the VAT basis is the price for purchase of the goods or similar goods. If there is no purchase price, the VAT basis is the manufacturing cost determined as of the date of supply of the goods.

Import of goods

The basis for VAT in the case of import of goods is based on the value established under customs regulations: the customs value plus duty. If the imported goods are subject to excise tax, the VAT basis is the customs value plus duty and excise tax.

However, there are special rules for determining the VAT basis for import of goods in the case of customs procedures for:

  • Outward processing—the VAT basis is the difference between the customs value of comparable goods admitted to the market and the value of the goods temporarily transported out of the country, plus duty. If there is excise tax, the VAT basis is the difference between the customs value of comparable goods admitted to the market and the value of the goods temporarily transported out of the country, plus duty and excise tax.
  • Temporary clearance with partial exemption from import duty—the VAT basis is determined by the customs value plus the duty that would have been owed if the goods had been admitted to the market. If there is excise tax, the VAT basis includes both duty and excise tax.
  • Processing under customs control—the VAT basis is the customs value plus the duty that would have been owed if the goods had been admitted to the market. If there is excise tax, the VAT basis includes both duty and excise tax.

The VAT basis in the foregoing instances is increased by the costs of commissions, packaging, transport and insurance—if not already reflected in the customs value—incurred up to the first destination within Poland, as well as transport to another destination within the EU if such place is known at the time of import. This location is deemed to be the place listed in the bill of lading or other shipping document on the basis of which the import is made. If such information is lacking, the location where the goods are first unloaded within Poland is regarded as the destination.

The VAT basis on import of goods also includes fees and other charges which the customs authorities are required to assess on import of goods.

However, the VAT basis on imports does not include amounts constituting a reduction in the price in the form of a discount for early payment or rebates and price reductions granted to the buyer or service recipient that are reflected at the time of sale.

In addition, the import of goods may eliminate the requirement to determine a separate VAT basis for performing other activities. A VAT basis is not determined:

  • In the case of import of services, if the value of the services was included in the tax basis for internal acquisition of goods or, under separate regulations, the value of the service increases the customs value of the imported goods.
  • If the buyer of the goods is taxed on the acquisition of the goods, and this involves goods assembled or installed, with or without a test start-up, and VAT on import was paid in full by the acquirer. As an exception, if the amount of VAT on import of goods is lower than the amount of the VAT that would be due for supply of such goods within Poland, the taxpayer making the acquisition is required to settle the difference.

III. Invoicing

General rule

From the beginning of 2014, the 7-day period for issuance of an invoice has been replaced by the requirement to issue an invoice by the 15th day of the month following the month in which the goods were delivered or the service performed. Similarly, in the case of prepayment (if it gives rise to a VAT obligation), the seller is required to issue an invoice by the 15th day of the month following the month in which it received the prepayment. However, invoices are not issued to document prepayments for the following:

  • Intra-community supply of goods
  • Supply of electricity, heat, cooling and piped gas
  • Telecommunications and radio communications services
  • Lease, tenancy, finance leasing and similar services
  • Services of protection of persons and protection, supervision and storage of property
  • Ongoing legal and office services
  • Waste services listed in items 140–153, 174 and 175 of Annex 3 to the VAT Act.

However, an invoice may be issued prior to delivery of goods or performance of services, i.e. within 30 days preceding delivery of the goods or performance of the services or receipt of full or partial prepayment before delivery of the goods or performance of the services. In certain instances, the 30-day limit for issuance of invoices has been dropped. If the invoice indicates the period which it concerns, it may be issued prior to 30 days in the case of:

  • Services for which successive payment or settlement periods have been established, including ongoing services payable less frequently than once per year
  • Delivery of goods for which successive payment or settlement periods have been established
  • All goods and services indicated above for which prepayments need not be documented by an invoice, apart from intra-community supply of goods, for which an invoice may also be issued only no earlier than 30 days before performance.

Special rules

There are certain fields for which the amended VAT Act provides special rules for issuance of invoices. Businesses providing services involving supply of electricity, telecommunications and radio communications services, ongoing legal and office services, lease, tenancy, finance leasing and similar services, or protection of persons and protection and supervision and storage of property, may not take advantage of the option to issue invoices earlier.

Meanwhile, special rules have been laid down for when the tax obligation on certain services arises:

  • For construction and construction/installation services, an invoice must be issued no later than 30 days after performance of the services.
  • For supply of printed books (PKWiU former 58.11.1)—except for maps and flyers—as well as newspapers, magazines and periodicals (PKWiU former 58.13.1 and 58.14.1), an invoice must be issued no later than 60 days following performance (or if the contract provides for settlement of publishing returns, the invoice must be issued no later than 120 days following the first delivery of the goods).
  • For activities involving printing of books (PKWiU former 58.11.1)—except for maps and flyers—as well as newspapers, magazines and periodicals (PKWiU former 58.13.1 and 58.14.1), an invoice must be issued no later than 90 days following performance.

Invoices may be issued earlier than the date of performance of such services or supply of such goods, but no earlier than 30 days prior to supply or performance.

Joanna Prokurat, Tax Practice, Wardyński & Partners