Significant VAT changes will enter into force in Poland for all companies exporting/importing applicable services from 1 November 2019.
This includes the obligatory split payment mechanism in certain circumstances, the elimination of the domestic reverse charge regime and a new means of classification of goods for VAT purposes.
In line with its goal to reduce the VAT gap and reduce administrative burdens, Poland has decided to replace the current domestic reverse charge system on listed goods (a reverse charge used as a tool against tax fraud) with an obligatory split payment mechanism.
The split payment mechanism was introduced in Poland on 1 July 2018. The use of the split payment is currently on a voluntary basis and the customer (the payer) is free to decide if they want to pay using the split payment mechanism or not. Once the split payment is chosen, the bank automatically splits the payment and the VAT amount goes to the supplier’s so called VAT account (the bank account created for VAT paid to the creditor) and the payment for the net amount goes to the supplier’s regular bank account. The benefit for those who split the payment is mainly focused on eliminating the risk of penalties in case they become unconsciously involved in VAT carousel fraud.
From 1 November 2019, the split payment rules are amended to introduce a new list (Annex no. 15) of 150 goods and services where the use of the split payment mechanism will become obligatory. However the obligation to use the split payment only arises where the amount on the invoice is at least 15,000 PLN (approx. £3,200).
If the invoice amount is under this threshold, the split payment may be used on a voluntary basis. Therefore the obligatory use of the split payment mechanism will apply if the two conditions are met - firstly, the taxpayer supplies goods/services listed in the new Annex and secondly, the invoice amount is at least 15,000 PLN.
Processors, smartphones, phones, tablets, netbooks, laptops, game consoles, inks, toners, hard drives
Fuel for cars, fuel and lubricating oils
Greenhouse gas emission rights
Building and constructions services
Sales of car and motorcycle parts
The tax invoice for supplies where the split payment is obligatory should contain the special narrative “Metoda podzielonej płatności” which means ‘split payment method’.
It's worth observing that, if the recipient of an invoice ignores the mandatory obligation to split the payment, the cost (the amount paid for the goods or services) becomes disallowable for the Polish income tax. In addition, there is a penalty of 30% of the VAT due imposed on the payer who ignores the obligation to split the payment. However, the penalty will not be imposed if the supplier pays the VAT due.
This requirement applies equally to non-established foreign taxpayers (without seat of fixed establishment in Poland) who supply or acquire in Poland goods or services listed within Annex 15. Foreign taxpayers will have to open a bank account in Poland in Polish zloty currency. The cost of this bank account regarding split payment transactions is refundable. Foreign taxpayers may apply for a refund on a quarterly basis.
Elimination of the reverse charge regime for domestic supplies
A natural consequence of the introduction of the obligatory split payment will be the elimination of the current domestic reverse charge regime. In Poland, Annex 11 to the VAT Act lists more than 40 groups of goods where supplies between VAT payers are subject to the reverse charge. The goal was to avoid the risk of fraud and irregularities when the input VAT was claimed and refunded while output VAT was never paid. However, since the obligatory split payment is seen as a sufficient tool to secure VAT neutrality, it is no longer necessary to keep the reverse charge regime.
Classification of goods
Another change for businesses operating in Poland is that Combined Nomenclature (CN) will replace the PKWiU (domestic classification database) for classification of goods for VAT purposes. This will help provide more certainty to taxpayers on VAT liability. By way of background, in Poland there is one standard VAT rate of 23% and two reduced rates of 8% and 5% for certain goods and services. The new Annexes (numbers three and ten) will replace the old ones and use the new CN codes.
It is possible that these new rules for classifying goods may result in changes to the VAT liability of certain goods or services. Taxpayers are required to adjust the applicable VAT rate based on the new classification rules.
Taxpayers will also benefit from the possibility to now apply for a binding ruling regarding the correct CN classification for the goods or the correct PKWiU for services. This will provide taxpayers with greater assurance on the correct application of the reduced VAT rates on applicable goods/services. The binding ruling would have to be accepted by the tax authorities during a tax audit even where their interpretation of the classification differs.
Speak to our team for help
Our international indirect tax team has experience in advising on the application of the split payment mechanism, including invoicing and system changes. In addition, Grant Thornton Poland is able to provide specific local Polish VAT advice and can assist with confirming local VAT compliance requirements resulting from the above changes in legislation.