How will the VAT exemption rules change for small businesses?
Like every EU member country, Poland is also obliged to implement more EU directives. One of them is Council Directive (EU) 2020/285 amending Directive 2006/112/EC and Regulation (EU) No. 904/2010. Under this complicated name is a document that will change, among other things. VAT rules. The main idea is to make it easier for small companies to do business in the territories of different EU countries. Here’s how the VAT exemption for small businesses will work:
- Polish companies that engage in cross-border activities will be able to take advantage of VAT exemptions in other EU member states,
- companies, with the seat of their economic activity in another EU member state, will be able to enjoy a subjective exemption from VAT in Poland.
How to use the exemption in another country?
To answer this question, it should be recalled that under current regulations, companies that start operating outside their country cannot take advantage of the tax benefits provided for companies operating in that country.
Example:
Mr. Ryszard runs a small company in the western part of Poland. Wanting to expand his business, he started providing services in Germany in February 2024. Under current regulations, Mr. Ryszard must pay VAT on the very first transaction completed abroad, so he is also required to register for VAT in Germany even before he starts selling there.
If Mr. Richard had decided to make the same move a year later, he would not have had to register, as he would have benefited from the VAT exemption resulting from the amended law – provided, of course, that he met the other conditions.
The situation described above is an everyday reality for Polish companies, which – wishing to operate abroad – must immediately pay VAT, regardless of the value of sales. The current state of affairs may therefore prove to be a brake on many small businesses that would like to expand their area of operations.
The upcoming amendment takes this problem into account and equalizes conditions for companies in all European Union countries.
Important!
A company that wants to take advantage of the VAT exemption should keep in mind that – while it will not have to pay output VAT, it will not deduct input VAT either. This is worth bearing in mind, especially if the company is just starting out, and wants to sell across borders right away. The final decision on whether to stay with VAT or give it up is up to the entrepreneur.
What are the current VAT exemption rules for all businesses in 2024? Check out the details in our guide!
VAT exemption – will the limit change?
Currently, entrepreneurs who want to avoid paying VAT can do so only on the condition that they did not exceed PLN 200,000 in sales value in the previous fiscal year. Do not include the amount of tax.
Unfortunately – although in April 2024 the Minister of Finance, Andrzej Domanski, announced that the limit would be raised to PLN 240,000 in January 2025, just two months later this information was dismissed and all indications are that in 2025 the existing limit will remain the same as it is now.
Additional obligations for entrepreneurs
Although the latest draft amendment to the Value Added Tax Law is expected to introduce some simplifications for businesses, it also entails new obligations. Under the plan, companies that want to take advantage of the exemption will have to meet the following conditions.
First: they must register as VAT payers in the country where they are established.
Second: they must file turnover reports. These reports should include information on the turnover achieved in each EU member state where the company does business. Such information should be submitted by the company’s representative every quarter.
Third: they must remember not one, but two limits on the value of sales – the national one (in Poland it is 200 thousand zlotys) and the general EU limit, currently at 100 thousand euros. EUR. Exceeding either of these limits makes the entrepreneur lose the possibility to use the VAT exemption.
Important!
The value of the national limit, giving the right to exemption, varies in each EU country. For example, in Denmark it is only DKK 50,000, which is equivalent to about EUR 7,000. EUR, while in France there are separate thresholds for the sale of goods and services. So when planning to expand your business area, you should preempt the move with an in-depth study of the tax situation in the target country.
What does the planned amendment to the VAT law mean for small businesses?
Taxpayers who operate a company based in the country will be able to exercise their right to exemption in another country if they adjust to the conditions in that country and do not exceed the limit set there. All this will be possible without having to register for VAT, which will reduce administrative costs and allow them to start providing services or selling products more quickly. Lower costs for companies, doing business across borders, is also an opportunity for better liquidity.
The introduction of a Community-wide limit (€100,000) is a good harbinger for the future, indicating that member countries will have an open path to increase the limit amounts (currently no EU country offers such a high limit).
The need to report turnover every quarter is an element that can raise questions for taxpayers. On the one hand, it is another obligation and a tool for controlling the company’s financial situation, but on the other hand, it can prove helpful in managing the company’s budget – especially for less experienced entrepreneurs.
Taxation of remote events
This amendment to the law also introduces changes regarding the taxation of costs associated with artistic, sports, scientific or cultural events. This set will include industry trade fairs, exhibitions, bootcamps, etc., as well as support services related to the organization of the same. It is worth noting that the changes apply only to events organized remotely and involving the virtual presence of participants.
So what are the planned changes based on? It is about the place of taxation of these services – currently the actual place of organization of the event in question applies. As soon as the amended law comes into force, the so-called “general rules” will apply. general rules, which consist in taxing services of this kind at the place of residence of the service recipient.
The actual change, therefore, is that recipients of ancillary services for remote events will not have to register and account for VAT in the places where the events take place. This is particularly important when the event takes place abroad. Instead, the taxpayer will settle VAT in the country where it is established.
Analogous rules will apply to the settlement of VAT when the services in question are provided to non-taxpaying individuals. In such a situation, the place of supply of services will be determined to be the place of residence of the consumer. This means that the service provider will be obliged to obtain information on the place of residence of the consumer.
Calendar of changes – when are the new VAT exemption rules?
At present, the Ministry of Finance has already submitted a draft law, and the planned deadline for adoption of the draft by the Council of Ministers is set for the 3rd quarter of this year. This is, incidentally, one of the latest possible deadlines.
According to the directive, member countries are required to implement the new regulations from January 1, 2025.
This time, however, there is a chance that the Polish government will rise to the occasion and not score a months-long delay, as happened with the work-life balance directive or the whistleblower law.
