Beginning on the 1st of July 2018, a new Polish VAT regulation called VAT Split payment will be enforced. This payment was introduced with the Act of 15.12.2017, as an amendment to the Act of Tax on Goods and Services. Its enforcement is voluntary.
The introduction of the new split payment policy is based on the idea that any payment made by a buyer to a seller for purchased goods or services is not done in one gross amount, but rather in two split payments, i.e.:
- the amount of net receivables – to any account specified by the seller, and
- the tax amount – to a dedicated account intended for the purposes of tax settlement (VAT account).
Banking entities have opened a specific VAT account for each individual taxpayer. Though this service was free of charge, it was mandatory for taxpayers in order to avoid additional expenses.
Furthermore, there are regulations on the expenditure of funds accumulated in the VAT account. It is assumed that a taxpayer, pending sufficient funds, will use this to pay his or her VAT tax liability to the Polish government.
In the case that their tax liability is lower than the amount accumulated in the VAT account, there is the option to apply for a refund, in whole or in part, with the head of the local tax office. Upon approval, those funds can be transferred to a regular checking or savings account. The tax authority has 60 days to issue a decision on the refund and maintains the right to decline approval in justified cases. Of course, tax payers, as with any decision made by the tax authorities in Poland, maintain the right to appeal the decision made by the tax authority.
The split payment regulation is applicable only to settlements between VAT taxpayers. Moreover, the VAT Split payment can be used only in settlements that were used to carryout transfers in Polish currency, PLN, regardless of the amount that is due. It should also be noted that it is not applicable to cash payments or foreign currencies.
Additionally, the accompanying legislation outlines several incentives to encourage local compliance, one of which includes the reduced interest rates on penalties in the event of late payments on tax obligations.
Fighting tax frauds
Though the VAT Split payment policy was originally introduced as voluntarily for all parties, on May 16, 2019, Poland’s Ministry of Finance launched a public consultation on proposals to mandate regulation for certain suppliers. This effort has been identified as a response to combat VAT fraud by the Polish government.
As for now, the VAT split payment regulation will apply to B2B sales when transactions are PLN15,000 (USD3,890) or more on a voluntary basis. The goods and services subject to the VAT Split payment policy include, but are not limited to, certain metals, electronics, jewelry, waste, fuels, and construction works.
In the case of mandating the Split VAT pay regulation for B2B sales, Poland has postponed this until 1 November 2019. This is a tertiary attempt to make this regulation compulsory for B2B tax payers, as the policy´s implementation as a mandated regulation has already been delayed from July to September of earlier this year.
The new regulations will require that taxpayers who carry out such transactions (both buyers and sellers) keep an account open and current at a bank in Poland at all times. This account must be in PLN since, as previously mentioned, the split VAT payments are only accepted in Polish currency.
There will also be a new invoice design, which should include information about the split payment scheme. Taxpayers who fail to comply with the new obligations will be subject to rigid penalties. Specifically, a vendor that issues an invoice that does not meet the requirements of the new design may be subject to an additional fine of 30% of the original VAT value. A buyer who pays an invoice irrespective of the Split VAT regulations may be fined an additional 100% of the original VAT value for the goods or services rendered. In addition, the cost of these invoices will not be tax deductible for income tax purposes.
The new regulation is set to include some benefits that are meant to simplify the operations of business in the future. Although taxpayers cannot use VAT account for day to day current business needs, which can negatively affect cash flow, it is worth noting that these funds may be used to pay other public obligations such as customs, taxes on income or Social Security in the future.
Companies operating in Poland should verify whether their products or services are affected by the new regulation. It is necessary to evaluate the actions necessary to comply with the new system such as: which ERP system best suits your company and allows for adaptation to make bank transfers, and what impact this may have on cash flow. In cases like these it is essential to enlist the help of an in-country expert, like Auxadi, to serenely and confidently help you meet the new standards for VAT Split payment regulations.