Many Polish entrepreneurs cooperate with foreign entities as part of their business activity, providing and purchasing services from such entities. It is difficult to imagine that such international cooperation would not have taken place even in the era of a prevailing pandemic. On the contrary, it seems that it was even more necessary. So how to treat such transactions in terms of VAT? In which country should they be taxed and how should they be documented?
Service for VAT purposes
Pursuant to the VAT Act, the provision of services is any supply to a natural person, legal person or organizational unit without legal personality that does not constitute a supply of goods. The definition is therefore broad and may cover many transactions. The VAT Act also indicates that the provision of services includes in particular:
- transfer of rights to intangible and legal assets, regardless of the form in which the legal act was performed;
- an obligation to refrain from performing an action or to tolerate an action or a situation;
- provision of services in accordance with an order of a public authority or entity acting on its behalf or an order arising from the law.
Place of service provision
In the case of service transactions with foreign entities, an important issue that should be considered is determining the place of providing such a service. This is important as it is the place where the service is provided that determines the country in which VAT will be paid.
As a general rule, in the case of recipient who is a taxpayer, the place of supply is the place where he has his business seat, and in the case of recipient who is not a taxpayer, it is the business seat of the supplier.
Who should be considered a taxpayer within the meaning of the VAT Act? A taxpayer is an entity independently conducting business activity, regardless of the purpose or result of this activity, as well as a legal person who is not a taxpayer, identified or obliged to identify itself for VAT purposes.
UK VAT taxpayer lost the status of an EU VAT taxpayer as of January 1, 2021. Within the meaning of the above regulation, the provision of services that are not subject to a specific place of performance is treated as a service for the taxpayer within the meaning of the above-mentioned general rule.
The VAT Act also introduces a number of exceptions to the general rule. Due to the fact that the VAT Act lists several specific situations regarding the place of service provision, below are examples of selected regulations in this area:
- immovable property services – the place of providing such services is the place where the immovable property is located; the services listed in the VAT Act include the services of appraisers, real estate agents, accommodation services in hotels or facilities with a similar function, such as holiday resorts or places intended for use as campsites, use of real estate, and services for the preparation and coordination of construction works, such as architects and construction supervision;
- restaurant and catering services – the place of providing such services is the place where these services are actually performed;
- admission to cultural, artistic, sports, scientific, educational, entertainment or similar events, such as fairs and exhibitions, and ancillary services related to these services – the place of providing such services is the place where the events actually take place, if the services are provided to the taxpayer;
- short-term hire of means of transport – the place of providing such services is the place where the means of transport are actually put at the disposal of the recipient. Short-term hire should be understood as hiring a given means of transport continuously for a period of up to 30 days;
- passenger transport services – the place of providing such services is the place where the transport takes place, taking into account the distances travelled.
In addition, the place of performance for some services provided to consumers is determined differently.
Obligation to register EU VAT
If a Polish entrepreneur wants to sell or purchase services from entities located in European Union countries (hereinafter: “EU”), he must register EU VAT before making the first transaction.
Registration is made by submitting a registration application (VAT-R) to the taxpayer’s competent tax office or its update, in the case of already registered taxpayers.
Then the taxpayer is assigned a NIP number (tax identification number) preceded by a two-letter prefix – “PL”, which he uses in intra-Community transactions.
Services provided to contractors from EU countries (“intra-Community provision of services”)
A Polish entrepreneur, when selling services to his contractor, whose business seat or fixed place of business is located in an EU country, performs “intra-Community provision of services”.
The tax obligation arises here, as a rule, upon the performance of the service or receipt of all or part of the payment. For example, the parties to the transaction may agree to accept the services in part, in which case the service is deemed to have been performed in respect of that part of the service for which payment has been agreed. Another example may be a situation where the contractor of a Polish entrepreneur has made a prepayment or an advance payment before the service is performed – in this case, the tax obligation arises upon receipt of payment in relation to the amount paid.
The VAT Act also indicates a catalogue of services for which the tax obligation arises upon issuing an invoice, including: telecommunications services, personal security services, security services, supervision and storage of property, permanent legal and office services, and electricity distribution.
As a rule, services provided to the taxpayers from EU countries are not taxed in Poland – the taxpayer will be the purchaser of the service. This does not mean, however, that such a transaction should not be documented in any way by the Polish entrepreneur. On the contrary, he must issue, by the 15th of the month following the month in which the service was performed, an invoice containing, in particular, the EU VAT numbers of the buyer and seller with the indication “NP” (not subject to) in the place intended for the introduction of the VAT rate and the annotation “reverse charge” “. This annotation, in accordance with Art. 106e section 1 point 18 of the VAT Act indicates that the obligation to settle VAT lies with the buyer.
In addition, the transaction must be shown in JPK_VAT and the VAT-EU summary information. The VAT-EU summary information should be submitted monthly by the 25th of the month following the month in which the service was performed, and if such a transaction was not made in a given month, the entrepreneur is not required to submit “zero” information.
Services provided to contractors from outside the EU countries (“export of services”)
In the case of providing services to contractors whose business seat or fixed place of business is located outside the EU, as in the case of intra-Community provision of services, the key issue is determining the place of provision of these services.
As a general rule, the place where the service is supplied is the place where the recipient is established or has a fixed place of business. Thus, as a rule, services provided by a Polish entrepreneur to a contractor based in a country outside the EU (e.g. Ukraine, China) will not be taxed in Poland. The VAT settlement should be made by a foreign contractor. It is beyond the scope of Polish or EU VAT.
Thus, a Polish entrepreneur should issue, by the 15th of the month following the month in which the service was performed, an invoice marked “NP” (not subject to) in the place where the VAT rate is entered. Such a transaction should be properly documented and shown in JPK_VAT.
Import of services
According to the VAT Act, import of services means the provision of services for the performance of which the recipient is the taxpayer.
Again, referring to the general rule of determining the place of supply of services (the place of performance is the business seat or fixed place of business of the recipient), it can be stated that import covers both transactions of purchase of services from contractors from EU and non-EU countries.
Import of services takes place when:
- the place of service provision is in Poland;
- the service recipient is a taxpayer with a business seat / fixed place of business in Poland;
- the service provider is a taxpayer with a business seat / fixed place of business in a country other than Poland.
The tax obligation in import arises in accordance with the general rule, i.e. upon the performance of the service or receipt of all or part of the payment. An important issue in the import of services is that in the case of such a transaction, the moment of issuing the invoice does not affect the moment when the tax obligation arises.
If a Polish entrepreneur has purchased services from a foreign contractor who does not settle in Poland, he is obliged to settle VAT on this transaction in Poland, if their place of performance is located here. Pursuant to the VAT Act, the tax base is everything that constitutes the payment that the service provider is to receive or has received for the sale. It should be remembered that the tax base does not include rebates, discounts and price reductions included in the sale, but it does include, inter alia, taxes, duties, shipping and packaging costs. If the amount on the invoice received by the recipient is given in a currency other than PLN, it must be converted using the average NBP exchange rate from the day preceding the date of the tax obligation, i.e. the date of the service performance or the date of payment, depending on the circumstances of the transaction.
Importantly, in the case of importing services related to the business activity conducted by a Polish entrepreneur in Poland, he has the right to reduce the amount of tax due by the amount of input tax to the extent that he uses these services in his business. This right arises in the settlement for the period in which the tax obligation arose for the purchased services, and the deduction is possible within 3 months from the end of the month in which the tax obligation for the purchased services arose. If the entrepreneur does not receive the invoice within the above-mentioned deadline, he is obliged to make a correction by reducing the amount of input tax in the settlement for the period in which this deadline expired. According to the regulations currently in force, however, he has the option of an appropriate increase in the input tax in the settlement period in which he received the invoice.
It is worth noting that the rules for deducting VAT in the case of importing services may change in the near future in connection with the SLIM VAT 2 project and the judgment of the CJEU of March 18, 2021 (C-895/19), in which it ruled that Polish regulations regarding the reporting of output and input VAT in two different accounting periods are contrary to European Union law. Although this judgment concerned the intra-Community acquisition of goods, the theses presented therein may also apply to the import of services. In addition, the SLIM VAT 2 package provides, inter alia the removal of the condition making the deduction of input tax in the same period in which output tax was reported conditional on the reporting of the VAT due within three months of the end of the month in which the tax obligation arose, or a change in the deduction of VAT after the expiry of the deduction deadline to ” on an ongoing basis ”- extension of the number of settlement periods in which the taxpayer will be able to make a deduction by correcting the tax return.