Blog

Settlements made by small taxpayers

17.07.2024

Pursuant to the Polish law, a taxpayer is a natural person, a legal person, or an organizational unit without legal personality that generates income and is subject to tax liability under tax laws.  

Small taxpayer 

On the basis of VAT in accordance with Art. 2(25) of the Polish VAT Act, a small taxpayer is defined as a taxpayer of goods and services: 

  • whose sales value (including the tax amount) did not exceed the amount expressed in PLN equivalent to EUR 2,000,000 in the previous tax year,  
  • running a brokerage company, managing investment funds, managing alternative investment funds, being an agent, contractor or other person providing services of a similar nature, with the exception of a commission – if the amount of commission or other forms of remuneration for the services provided (including the amount of tax) did not exceed the previous tax year, an amount expressed in PLN equivalent to EUR 45,000  

Whereas the conversion of amounts expressed in EUR is made in accordance with the average EUR exchange rate announced by the National Bank of Poland (NBP) on the first working day of October of the previous tax year, rounded to PLN 1,000.  

The limit for benefiting from the small taxpayer status in 2024 is PLN 9,218,000.  

EUR 2,000,000 × PLN 4.6091 ≈ PLN 9,218,000  

The limit entitling to the status of a small taxpayer in 2024 for taxpayers providing intermediation services is PLN 207,000.  

EUR 45.000 × PLN 4.6091 ≈ PLN 207.000  

Tax liability – cash method 

Pursuant to Art. 21 of the Polish VAT Act, the legislator gives small taxpayers the opportunity to choose VAT settlement according to the so-called cash method. It is a specific method in terms of the moment when tax liability arises in the case of settling output and input tax. Then the tax liability is determined by:  

  • the date of receipt of all or part of the payment – in the case of delivery of goods or provision of services to a taxpayer registered as an active VAT payer, or 
  • the day of receipt of all or part of the payment, no later than 180 days. Counting from the date of delivery of goods or provision of services – in the case of delivery of goods or provision of services to entities that are not VAT payers.  

If part of the invoice amount is paid, it will trigger a tax liability in relation to this part. 

Settlement of output and input VAT applying the cash method 

In the cash method, the taxpayer settles the output tax upon receipt of payment from the purchaser of the goods or services. The date of delivery of goods or provision of services is not important here and it does not result in tax liability. Therefore, the taxpayer does not settle the sales invoice earlier than in JPK for the payment period.
It works very similarly for the buyer. Pursuant to Art. 86(10e), in the application of the cash method, the right to reduce the output tax due by the input tax in relation to goods and services purchased by a small taxpayer, after receiving an invoice marked with the cash method, arises no earlier than in the settlement for the period in which the taxpayer settled the payment for the purchases made. 

When settling output VAT, however, it must be remembered that the output tax must be settled, regardless of the payment, when two conditions are met: 

  • the transaction is made to private persons or companies that are not active VAT payers, 
  • 180 days have passed from the date of delivery of the goods or provision of the service (Art. 21 of the Polish VAT Act). 

A small taxpayer wishing to apply this method of settling VAT is obliged to notify the head of the tax office by submitting the VAT-R form. The form must be submitted no later than at the end of the month preceding the period from which the cash method is to be applied. If over time the taxpayer would like to abandon this method, the regulations also provide for such a possibility, but not earlier than after 12 months of settlement applying the cash method. The VAT-R update is then submitted by the end of the quarter in which the taxpayer applied this method.  

MK designation 

The application of the cash method also carries certain documentation obligations. Small taxpayer is obliged to:  

  • mark sales invoices with the words “cash method” [metoda kasowa (MK)] – in accordance with Art. 106e(16b). This marking is information for the buyer that the seller applies the cash method, so the moment of VAT settlement for the buyer will occur no earlier than when they pay all or part of the invoice amount;  
  • submitting VAT returns for quarterly periods – by the 25th day of the month following each subsequent quarter, however, the JPK registration part itself should be submitted for each month. 

Exemptions from the cash method 

The VAT Act also includes several cases where the cash method cannot be applied. Pursuant to Art. 21(6)(2), the cash method cannot be applied in the following situations: 

  1. Transfer of single-purpose vouchers specified in Art. 8a(1) and (3). 
  2. Intra-Community supply of goods or transfer of goods to a consignment warehouse for subsequent delivery. 
  3. Distance sales of goods using an electronic interface, made to and by a taxpayer facilitating the supply of goods.
    In such situations, the taxpayer is obliged to settle VAT in accordance with general principles.  

The application of the cash method by a small taxpayer is voluntary; however, it is a method used by many small taxpayers due to the fact that it allows them to maintain financial liquidity. Nevertheless, they must keep the sales limit in mind, because after a month in which the limit is exceeded, they automatically lose the right to apply settlement with cash method.  

 

Author: Karolina Rostkowska, Junior VAT Specialist in the Warsaw office of MDDP Outsourcing