Is unregistered activity subject to VAT?

Service-Tax

Undeclared activity, also known as unregistered activity, gives the right to numerous tax advantages.A taxpayer deciding to use this form of economic activity can count on many simplifications in the field of tax law. The catalog of these preferences is mainly based on income tax regulations. It is also worth considering whether unregistered activity is subject to VAT?

Features of unregistered activity

If you want to know the principles of operation of unregistered activities, please refer to the content of the Entrepreneurs' Law.

In art. 5, we can read that the activity performed by a natural person, whose income due from this activity does not exceed 50% of the minimum wage in any month and who has not performed any economic activity in the last 60 months, is not a business activity.

A person engaged in unregistered activity may submit an application for entry in the Central Register and Information on Economic Activity. This activity becomes an economic activity on the date specified in the application.

If the revenue due from unregistered activity in a given month exceeds the limit, this activity becomes an economic activity, starting from the day on which the limit was exceeded. The due income is understood to mean the amounts due, even if they were not actually received, after excluding the value of the returned goods, granted discounts and discounts.

It is worth pointing out that unregistered activity is associated with many simplifications and facilitations. We can indicate that a natural person conducting this type of activity:

  • does not have to report the activity in the register of entrepreneurs (CEIDG), the tax office and the Central Statistical Office;

  • he does not have to pay ZUS insurance contributions and submit ZUS declarations;

  • does not have to pay monthly (or quarterly) tax advances;

  • does not have to keep complicated accounting.

By switching to tax law, we can indicate that in accordance with Art. 20 paragraph 1a of the PIT Act, income from unregistered activity is classified as other sources. This means that the generated income is subject to taxation according to the tax scale specified in Art. 27 of the PIT Act. In this case, the rate of 17% applies, and if the tax base exceeds PLN 85,528, the tax rate increases to 32%. Due to the fact that the tax is settled only in the annual tax return (PIT-36), the taxpayer conducting unregistered activity is not obliged to pay tax advances. Undeclared activity is not treated as economic activity. Also, in terms of personal income tax, income from unregistered activity is not classified as income from non-agricultural business activity, but as income from other sources.

Unregistered activity and the VAT Act

Referring to the definition of a taxpayer of value added tax, it should be noted that pursuant to Art. 15 sec. 1 of the VAT Act, taxpayers are legal persons, organizational units without legal personality and natural persons who independently carry out economic activity referred to in paragraph 2, regardless of the purpose or result of such activity.

However, pursuant to Art. 15 sec. 2 of the VAT Act, economic activity covers all activities of producers, traders or service providers, including entities acquiring natural resources and farmers, as well as the activities of freelancers. Economic activity includes, in particular, activities consisting in the use of goods or intangible assets on a continuous basis for commercial purposes.

Therefore, we can note that, from the point of view of the VAT Act, a person conducting unregistered activity will be a VAT taxpayer if he conducts business activity in accordance with Art. 15 sec. 2 of the VAT Act.

Therefore, let us point out that conducting unregistered activity meets the criteria of economic activity within the meaning of the VAT Act, because it is a continuous activity conducted for profit. It should also be pointed out that the VAT Act does not introduce any limits to economic activity. As a consequence, the mere fulfillment of the material conditions means that we can talk about economic activity, which is subject to the VAT Act.

Unregistered activity is an economic activity within the meaning of the VAT Act. Consequently, it is subject to tax on goods and services.

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Is unregistered activity subject to VAT?

The application of the provisions of the VAT Act to unregistered activities means that all regulations of this act may refer to it.

Thus, unregistered activity may, for example, benefit from the subjective exemption specified in Art. 113 paragraph. 1 of the VAT Act. Pursuant to this provision, sales by taxpayers whose sales value did not exceed PLN 200,000 in total in the previous tax year are exempt from tax. The amount of tax is not included in the sales value.

Sales made by the taxpayer starting during the tax year, performing the activities specified in art. 5, if the estimated value of the sale does not exceed, in proportion to the period of economic activity in the tax year, the amount specified in paragraph 1 (Article 113 (9) of the VAT Act).

We should remember, however, that in accordance with Art. 113 paragraph. 13 of the VAT Act, the exemptions referred to in para. 1 and 9, does not apply to taxpayers:

  1. making deliveries:

  1. goods listed in Annex 12 to the Act,

  2. goods subject to excise duty, within the meaning of the provisions on excise duty, with the exception of:

  • electricity (CN 2716 00 00),
  • tobacco products,
  • passenger cars other than those mentioned in point (a) e, classified by the taxpayer, pursuant to the provisions on income tax, as fixed assets subject to depreciation,
  1. buildings, structures or parts thereof, in the cases referred to in Art. 43 sec. 1 point 10 lit. a and b,

  2. construction areas,

  3. new means of transport,

  4. the following goods, in connection with the conclusion of a contract under an organized system of concluding distance contracts, without the simultaneous physical presence of the parties, with the sole use of one or more means of distance communication up to the conclusion of the contract, inclusive:

  • cosmetic and toilet preparations (PKWiU 20.42.1),
  • computers, electronic and optical products (PKWiU 26),
  • electrical and non-electrical household appliances (PKWiU 27),
  • machinery and equipment not elsewhere classified (PKWiU 28),
  1. wholesale and retail parts for:

  • motor vehicles (PKWiU 45.3),
  • motorcycles (PKWiU 45.4);

2.providers of services:

  1. legal,

  2. in the field of consultancy, with the exception of agricultural consultancy related to the cultivation and breeding of plants as well as animal breeding and breeding, as well as related to the preparation of a development plan and modernization of a farm,

  3. jewelery,

  4. debt collection, including factoring;

3. not having the seat of economic activity in the territory of the country.

In the light of the above, we can therefore indicate that a taxpayer conducting unregistered activity, who does not perform one of the above-mentioned activities, may take advantage of the subjective exemption from VAT. Taking into account the fact that the monthly limit of unregistered activity is 50% of the minimum wage, it is not possible for such a taxpayer to exceed the amount of PLN 200,000, which is the annual VAT exemption ceiling.

This, on the other hand, means that in the overwhelming majority of cases a natural person conducting unregistered activity, although subject to VAT, will nevertheless be able to benefit from a subjective exemption from VAT.