Deduction of VAT from invoices received before the waiver of the subjective exemption

Service-Tax

VAT deduction in practice

Entities that resigned or lost the right to the exemption (as a result of exceeding the limits) often find it difficult to determine whether they are entitled to deduct VAT from previously received invoices.

The taxpayer has the right to reduce the amount of output tax by the amount of input tax to the extent that the goods and services are used to perform taxable activities - this is regulated by Art. 86 sec. 1 of the Act on tax on goods and services. This means that when buying goods during the tax exemption, the taxpayer has the right to deduct VAT (if he uses them for taxable activities) in the future, when he waives the exemption. But is it really so?

VAT deduction and tax exemption

According to the VAT Act (Article 113 (1)), the tax exemption applies to taxpayers whose taxable sales value in the previous tax year did not exceed PLN 150,000. This law does not include:

  • taxpayers who are statutorily exempt from VAT (e.g. in the field of medical services) and
  • compulsorily taxed taxpayers (e.g. alcohol trade).

Active VAT taxpayers who did not benefit from the exemption earlier, whose sales in a given year did not exceed PLN 150,000, may cancel the exemption if:

  • are VAT payers for at least 1 year and 1 day and
  • will notify the head of the US.

The right to take advantage of the tax exemption also applies to entrepreneurs starting their business - if it takes place during the financial year, the sales limit is calculated taking into account the monthly proportion.

Resignation from tax exemption and VAT deduction

If the sale of the taxpayer exceeds the statutory limit (PLN 150 thousand), he loses the right to a personal exemption and thus is obliged to pay tax (in the first month after exceeding) on ​​the value that exceeds the above-mentioned limit.

The taxpayer benefiting from the exemption may resign from it at the beginning of each subsequent month after the exemption, informing the head of the relevant tax office about it in writing. The latter should be notified before the first day of the month in which the taxpayer resigns from the exemption.

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In the discussed cases, the taxpayer may exercise the right to deduct input VAT based on advance invoices received before resigning from the subjective exemption. In this situation, the deduction of VAT may be made not on general terms, but only as an adjustment.

VAT deduction from previous invoices

Art. 113 sec. 5 of the VAT Act says that the loss or resignation from the subjective exemption creates a tax liability for the taxpayer.

There are cases when the taxpayer has the right to reduce the amount of tax due by:

  • the amount of input tax that results from customs documents,
  • the amount of tax paid from WNT,
  • the amount of input tax that results from the invoice documenting the purchase made before the date on which the exemption was lost.

The conditions for the reduction are obtaining the consent of the head of the tax office and:

  • making a physical inventory of the inventory of these goods held on the day on which the limit of PLN 150,000 was exceeded,
  • delivering the census to the Tax Office within 14 days from the date on which the exemption was lost.

The amount of input tax discussed above is the product of the number of goods included in the physical inventory and the amount of input tax per unit of goods, taking into account the division into specific tax rates.