As of January 1, 2025, a new amendment to the Polish VAT Act will come into force, introducing important changes to the subject-based VAT exemption system. The changes aim to implement EU regulations i.e. SME Directive (2020/285) into the national legal framework, providing a clearer and more simplified VAT landscape for small and medium enterprises (SMEs) operating within the European Union.
Current VAT Regulations in Poland
Under the current VAT regulations, subject-based VAT exemptions are only available to taxpayers who have their business established in Poland and whose total sales did not exceed PLN 200,000 in the previous tax year. For businesses that have just started operations, the limit is calculated proportionally to the period during which the business has been active within the year. However, businesses not based in Poland are not currently eligible for this VAT exemption. As a result, foreign businesses selling goods or services in Poland must apply VAT from the very first sale within the country, which can be administratively burdensome.
New VAT Exemption Rules for EU Contractors
Starting January 1, 2025, the amendment will introduce a special VAT exemption procedure for small businesses based in other EU countries (outside of Poland), known as the SME (Small and Medium-sized Enterprises) procedure. According to the new rules, a business established in another EU country will be exempt from VAT on sales made in Poland if the following conditions are met:
- Annual Sales Limit: The business’s total annual sales of goods and services, including sales in Poland, must not exceed EUR 100,000, excluding VAT, in both the current and previous tax years.
- Domestic Sales Limit: The business’s total sales (excluding VAT) in the country (Poland) must not exceed PLN 200,000 in the previous or current year. This follows the same rules as those set out for Polish taxpayers, where certain exclusions apply from the limit and where the limit is adjusted for businesses that begin operations during the year.
- Exclusion of Certain Transactions: The business cannot engage in certain types of transactions in Poland that are excluded from the exemption, as outlined in Article 113(13) of the VAT Act.
This reform will simplify the VAT system for small businesses operating in multiple EU countries, enabling them to avoid complex VAT registration and filing requirements in Poland, provided they meet the conditions.
Benefits Streamlined Cross-Border Trade: The new VAT exemption for EU businesses will facilitate smoother and more efficient cross-border trade within the EU, reducing the need for VAT registration and administrative overhead for foreign businesses.
- Simplification for SMEs: The new regulations will be especially beneficial for small businesses operating in multiple EU countries, helping them avoid the complexities of VAT refunds and cross-border VAT filings.
- Enhanced Internal Market Integration: The introduction of the SME exemption aligns with the EU’s broader goal of creating a unified internal market where businesses can operate across borders with fewer barriers and less regulatory friction.
How Will This Affect Polish Businesses
Polish businesses will also benefit from these changes, as they will be able to apply for the subject-based VAT exemption when conducting transactions with contractors from other EU countries, provided they meet the specific requirements set by the foreign country. This harmonization will make it easier for Polish businesses to expand into other EU markets without facing complicated VAT systems.
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