Polish regulations concerning VAT create obligation to have a bank account in Polish bank on taxpayers in the event of a VAT refund request. At first glance it does not seem to be a big issue, however it might come as a huge surprise, but creation of a bank account in Polish bank by foreign entity is extremely difficult.
When applying for a VAT refund in Poland, you will learn that an account in a bank operating in Poland is a must. Polish law regulations on VAT are clear in this case, tax refund can only be done on the account in a local bank. Although this mechanism might be seen as non-compliant with the EU free movement of capital rule, it forces the taxpayers to open a bank account in a bank operating locally in Poland to claim refund they are entitled to. Foreign companies are the major victims of this issue, with the majority being from European Union.
Based on the Polish Law of Entrepreneurs and the Income tax provisions, the Polish established entrepreneurs cannot deduct the purchases exceeding 15K PLN from a tax base paid to the bank account of the vendor that is not whitelisted in the Polish Ministry of finance registries. It means that in such a case such purchases are treated as non-tax deductible which strongly limits the cooperation between Polish and foreign companies that have no Polish bank account. Although, the Polish laws predict some solutions enabling the cooperation between Polish and foreign businesses without establishing a local bank account, from our experience, foreign companies are often forced by Polish established companies to have a bank account in Poland, especially when they are VAT registered in Poland.
Split payment mechanism
Entrepreneurs, whose business activity touches upon sales or purchase of goods or services listen in annex 15 to the Act on VAT, are also subject to obligation to possess bank in Polish bank. This happens due to the fact that transactions of this type are likely to be covered by the split payment mechanism in Polish called “mechanizm podzielonej płatności” (MPP), which due to Polish Banking Laws regulations can only be done between Polish bank accounts. Legislators require all participating taxpayers to have bank accounts in Poland, if transaction concerned could be subject to split payment mechanism. In order to mitigate the detrimental aspects of this, Act on VAT introduces possibility of refunding the costs of managing such account, which, as you will shortly understand, completely misses the point – the real issue is not the cost of managing the account, but the creation of it.
Banks and their compliance departments follow very strict guidelines and are keen on conducting never ending verification procedures for such clients. It is common, for a Bank to be lacking in interest in creating a bank account for foreign entity, which results in a company not being able to conduct business activities in full capacity nor regain overpaid tax they are entitled to. This happens mainly due to Know Your Client (KYC), anti-money laundering and due-diligence procedures, evaluating risks of such operations to exceed the potential gains and with law not providing any help for the client – the process of opening the bank account might take many months and may failed by rejection of the application by the bank, without the right to appeal. It might come as no surprise that this situation leads to doubts concerning the actual applicability of the EU policy of entrepreneurial freedom in Poland.