The right to deduct VAT during the period of suspension of business activity

Service-Tax

The entrepreneur has the right to suspend business activity for a definite or indefinite period, but it cannot be shorter than 30 days. Changes in this respect were introduced on the basis of the Act - Entrepreneurs' Law, which has been in force since April 30, 2018. Does the entrepreneur have the right to deduct VAT during the period of suspension of business activity? Check the consequences of a suspension of business activity.

Entrepreneur's rights and obligations - suspension of activity

In order to suspend business activity, the entrepreneur submits the completed CEIDG-1 form to any commune office or city office. The taxpayer has four options for submitting the print:

  • in person at the city or commune office,
  • electronically using a secure qualified signature,
  • electronically without a secure qualified signature - through a trusted profile,
  • by registered mail (signature notarized).

Art. 25 sec. 2 of the Act - Entrepreneurs' Law defines the rights and obligations of the taxpayer suspending the activity. According to its content, the entrepreneur:

  • may perform all activities necessary to maintain or secure the source of income, including termination of previously concluded contracts;
  • can accept receivables and is obliged to pay liabilities that arose before the date of suspension of business activity;
  • may sell its own fixed assets and equipment;
  • has the right or obligation to participate in court proceedings, tax and administrative proceedings related to business activity performed before the suspension of business activity;
  • performs all obligations prescribed by law;
  • may generate financial income, also from activities carried out before the suspension of business activities;
  • may be inspected in accordance with the rules provided for entrepreneurs conducting business activity;
  • may appoint or dismiss a succession administrator referred to in the Act of 5 July 2018 on succession management of an enterprise of a natural person and other facilities related to the succession of enterprises.

Obligation to settle liabilities - suspension of business activity

As mentioned above, the act imposes an obligation on the entrepreneur to settle obligations arising before the date of suspension of business activity. Certainly, these will be payments for goods or materials that have fallen after the suspension period. Additionally, among them can be mentioned:

  • leasing installments,
  • telephone subscription (company telephone),
  • rent for the premises,
  • Internet fee etc.

As a rule, this type of expenses may constitute a tax cost, provided that they are related to business activity and were incurred in order to achieve income or to maintain or secure the source of income, with the exception of the costs listed in art. 23 of the PIT Act.

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Deduction of VAT on expenses incurred during the suspension of activities

If the entrepreneur is an active VAT payer, in principle, he can deduct VAT from the expenses incurred during the suspension period. Importantly, it must meet one of the basic requirements set out in Art. 86 sec. 1 of the VAT Act. According to its content, the taxpayer has the right to deduct input VAT on the purchased goods and services, provided that they are used for taxable economic activity.

As a rule, general regulations will apply here, according to which the taxpayer may deduct the tax in the period in which the tax obligation arose with the supplier, but not earlier than in the period in which he received the invoice, or in one of the two subsequent ones.

The entrepreneur, wishing to deduct VAT from these purchases, will be obliged to submit declarations within the appropriate statutory deadlines. Interestingly, the taxpayer will be able to apply for a direct refund of overpaid tax. However, the maximum allowable period, i.e. 180 days, will have to be expected for the refund, counting from the date of submitting the declaration in which the intention to recover the overpaid tax was declared. This period may be shortened to 60 days in the event of selling own fixed assets or equipment.

Apart from the above option, there is one more solution, according to which the taxpayer will be able to deduct input VAT after suspending business activity, by submitting corrections of VAT returns for the entire period of suspension.