How does VAT work?
VAT registration is obligatory if:
- Your annual income exceeds PLN 200 000;
- Your Polish Classification of Activity (Polish code classifying the type of business activity) includes “consulting” service;
Due to costs you can register for VAT voluntarily.
How does VAT work if you are VAT registered:
- you always add 23% VAT (or 8%, 5%, 3% VAT rate – depending on your business activity) to your price: if your net price is PLN 100, after you add 23% VAT rate ( which is 23 PLN), the gross price you offer is PLN 123;
- each month you need to give back 23% VAT (PLN 23) to the Polish Tax Office;
- if your Clients are natural persons (not companies or legal persons) they need to pay PLN 123, which is a lot;
- if your Clients are VAT registered companies (legal persons), they pay PLN 123 as well, but they keep PLN 23 for themselves;
- this means that you need to know whether you are selling your products or services to a natural or legal person (company).
- Everything you buy in Poland is already VAT taxed. If you buy a pen for net price of PLN 10, VAT is PLN 2.3 – gross price is PLN 12.30 (only gross price is provided on price tags).
- If you are VAT registered you could claim back PLN 2.3 VAT on your purchase;
Your accountant calculates VAT you need to pay. Your gross income is PLN 123 but cost of buying a pen is also due and the amount of PLN 2.30 VAT needs to be deducted. This means you need to pay PLN 20.70 to the Polish Tax Office : PLN 23 income reduced by PLN 2.30 cost (PLN 23.00 – PLN 2.30 = PLN 20.70). You saved PLN 2.30.
How does VAT work if you are not VAT registered
- You do not add VAT to your price: it is net only;
- Your price is always PLN 100;
- Clients who are natural persons (not a company or legal persons) pay only PLN 100;
- Clients who are legal persons (companies) pay PLN 100 as well;
- You cannot keep or claim back VAT on your purchases, despite paying VAT included in gross price – pen purchase price was PLN 12.30 and PLN 2.30 is a cost to you.
Generally, VAT registration is recommended if your company generates cost. However, you always need to be mindful whether your Clients are natural or legal persons.
EU VAT registration is obligatory, if you wish to sell your products or services outside Poland, but inside EU. Transactions between companies inside EU are subject to 0% VAT rate. Transactions between companies and private persons within EU are VAT taxed by the company selling products or services.
If you are registered for EU VAT and make purchases in Poland, you get Polish VAT refund from the Polish Tax Office (if you are registered for both EU and Polish VAT).
You can be registered for EU VAT only or for both: EU and Polish VAT.
You do not have to be VAT registered if you sell your products or offer your services in countries outside EU – it is always subject to 0% VAT rate.