The Polish Deal introduces a series of changes to VAT payments, including the possibility to create “VAT groups”, guaranteeing tax neutrality between group entities, support for entrepreneurs who make non-cash settlements and limitations on cash turnover. The changes include:
Option to apply VAT tax to financial services
- The Polish Deal makes it possible to pay VAT on financial services which have, in principle, been tax exempt until now.
- To date, entities from the financial industry have been unable to deduct input tax on the purchase of goods or services. This resulted in them incurring the VAT burden.
- The new provisions allow a company to opt to apply VAT to financial services, which will enable improved cash-flow as part of business activities and facilitate real savings. However, it should be remembered that the option to apply VAT must then be applied to all – and not merely some – of the financial services provided to taxpayers.
- Importantly, the option to apply VAT on financial services can only apply to B2B transactions. Trade with natural persons cannot benefit from this taxation option.
- The taxpayer’s choice to apply VAT will be binding for a minimum of two years, after which the taxpayer will be entitled to again apply the VAT exemption.
- The proposed provisions enable the option to apply VAT on the following services:
- Transactions, including brokerage for transactions dealing in currencies, bank notes and coins used as legal tender
- Fund management
- The provision of credit or cash loans and intermediaries in credit or loan services, and the management of credit or cash loans by a creditor or lender
- Sureties, guarantees and any other security related to financial and insurance transactions, plus the brokerage of such services and the management of credit guarantees by a creditor or lender
- Cash deposit services, maintenance of cash accounts, all kinds of payment transactions, money orders, debts, checks and bills of exchange, plus the brokerage of such services
- Services involving shares in companies or other entities with legal personality, plus the brokerage of such services,
- Services regarding financial instruments and related brokerage services
It is crucial to take steps to analyse the profitability of ceasing to apply the tax exemption and then, if this seems to result in positive results, to take steps to implement a new structure by changing the manner of circulating documents in your company, introducing new accounting procedures and preparing employees new realities.
Creating VAT Groups
- An important change arising from the Polish Deal package enables taxpayers to group themselves into so-called VAT groups.
- This institution is known for many years, especially in the countries of “Old Europe”. It enables a group of related VAT payers to be treated as a single taxpayer for the purposes of external transactions – entities belonging to one VAT group become one taxpayer. This results in tax neutrality within the VAT Group itself.
- The Polish Deal allows VAT Groups to be formed by Polish entities (including foreign taxpayers which operate in Poland via branches) that are financially, economically and organizationally interrelated throughout the duration of the VAT Group.
- Financial connections: defined as one of the entities within the VAT group directly owning over 50% of the shares (stocks) in the share capital or over 50% of the voting rights in the controlling, constitutive or managing organs, or over 50% of the participation rights in profit, of the other taxpayers which are members of the group.
- Economic links: should be understood as being analogous to the main activity, but also as coherence – i.e. the complementarity and interdependence of the activities carried out or conducting activities entirely or largely used by members of the group.
- Organizational ties: the entities that make up the group – legally or factually, directly or indirectly – have a joint management or organize their activities wholly or partially in concert.
- The members of a VAT group have many opportunities regarding cash-flow optimization, as intra-group transactions are not subject to VAT, which helps to avoid depleting the members’ company accounts.
- It is worth remembering, however, that VAT group members will be jointly and severally liable (including after the group ceases to function) for its VAT liabilities due for the period in which the group existed.
Limits on cash turnover
- The new legislation will enable the acquisition of so-called Non-Cash Taxpayer status. Such taxpayers can benefit from the VAT refund period being shortened to 15 days.
- The speedier VAT-refund status can be acquired by taxpayers in respect of which:
o at least 80% of sales have been registered using cash registers which enable the connection and transfer of data between the cash register and the Central Repository of Cash Registers (CRK) – online and virtual cash registers;
o at least 80% of sales recorded using cash registers were paid using payment instruments, including credit transfer services.
- Additionally, the Ministry of Finance has explained that, in order to receive an accelerated VAT refund, certain other conditions must be met:
o for the previous 12 months, the total value of sales, including tax, recorded with the use of cash registers may not be lower than PLN 50,000 per accounting period;
o the surplus amount of input tax over tax payable which was not settled in previous accounting periods and shown in the current declaration cannot exceed PLN 3,000;
o the VAT refund amount may not exceed twice the tax resulting from sales recorded with the use of cash registers within a given settlement period;
o within the previous 12 months the taxpayer must be registered as an active VAT payer, submit declarations and keep sales records using only cash registers which enable the connection and transfer of data to the CRK;
o the taxpayer must have an account which is disclosed in the so-called “White List”.
- The legislation cross-refers to the provisions of the Payment Services Act, listing instruments such as cards, mobile payments or credit transfers.
- In addition to the accelerated VAT refund privilege, the legislation will lower the limits for executing cash transactions to:
- PLN 8,000 for transactions between entrepreneurs (B2B);
- PLN 20,000 for transactions between an entrepreneur and customer (B2C)