Input tax correction and resignation from VAT exemption

Service-Tax

Many times, taxpayers who are entitled to VAT exemption voluntarily resign from it. This decision results in the possibility of adjusting the input VAT on purchases made while benefiting from the exemption, but it is only possible in strictly defined situations with a time limit. The article describes in which cases an input tax adjustment may be made after resignation from the VAT exemption.

Correction of input tax after resignation from VAT exemption

The possibility of correcting the input VAT after resigning from the exemption from VAT is a favorable situation for the entrepreneur, because under Art. 91 paragraph. 7b of the VAT Act allows you to deduct tax on purchases made in the period in which the right to do so was not entitled to it, provided that it only performs taxable activities.

Art. 91 sec. 7b in connection with joke. 91 paragraph. 1-6 of the VAT Act

The provisions of paragraph 1. 1-6 shall apply mutatis mutandis in the event that the taxpayer had the right to reduce the amount of tax due by the entire amount of input tax on the goods or services used by him and made such a reduction or did not have such a right, and then the right to reduce the amount of tax has changed due by the amount of input tax on this good or service.

However, these regulations apply to selected assets, i.e .:

  • fixed assets and intangible assets as well as land and rights to perpetual usufruct of land, if they have been classified as fixed assets or intangible assets of the buyer with an initial value exceeding PLN 15,000;

  • fixed assets and intangible assets as well as land and rights to perpetual usufruct of land, if they have been classified as fixed assets or intangible assets of the buyer with an initial value not exceeding PLN 15,000;

  • goods, materials, commercial raw materials.

Correction of input VAT on fixed assets

A taxpayer who acquired a fixed asset during the period in which he did not have the right to deduct input VAT, and later regained this right as a result of resignation from the exemption, has the option, after registering as an active VAT payer, to correct the VAT. It is possible only in a situation where the correction period has not passed and if the fixed asset will be used only in taxable activity.

The method of correcting the input VAT on fixed assets purchased before resigning from the VAT exemption depends on two factors:

  • its initial value,

  • type of fixed asset.

Fixed assets with the initial value exceeding PLN 15,000

In the case of fixed assets whose value exceeds PLN 15,000, the time that has elapsed from the moment of putting the fixed asset for use and its type is important. Such an adjustment is made in the tax return submitted for the first tax period of the year following the tax year for which the adjustment is made within:

  • 5 years, counting from the year in which fixed assets other than real estate and perpetual usufruct rights to land were put into use. In each subsequent year, the taxpayer has the right to correct 1/5 of the input VAT;

  • 10 years from the year in which the real estate and the right of perpetual usufruct of land were put into use. In each subsequent year, the taxpayer may correct 1/10 of the input VAT.

Example 1.

In January 2018, the taxpayer resigned from the VAT exemption. In 2016, he purchased a production machine with an initial value of PLN 42,478.26 net + PLN 10,000 VAT. Therefore, after the end of 2018, it will be able to increase the value of the input tax by PLN 200 (⅕ from PLN 10,000) in the VAT-7 declaration for January 2019. Further deductions will also be made after the end of 2020 and 2021.

The amount to be deducted must be entered in section D.3. in item 47 of the VAT-7 declaration.

Fixed assets and equipment with an initial value below PLN 15,000

Corrections of the input VAT on fixed assets, the initial value of which does not exceed PLN 15,000, purchased before the resignation from the VAT exemption, is made once in the declaration for the period commencing the discontinuation of the subjective exemption. Deduction of VAT on this type of fixed assets is possible only when 12 months have not passed since the end of the settlement period in which they were put into use.

Example 2.

In January 2018, the taxpayer resigned from the VAT exemption. In July 2017, he purchased a printer worth PLN 1,500 net + PLN 345 ​​VAT. Therefore, he will be able to deduct the entire value of VAT (PLN 345) in the VAT-7 declaration for January 2018.

The amount resulting from the correction should be completed in part D.3. in item 48 of the VAT-7 declaration.

Commercial goods

Commercial goods, basic materials and raw materials purchased before the waiver of the VAT exemption are also subject to adjustment. The deduction of VAT must be made in full in the first VAT return submitted after waiving the exemption in part D.3, item 48.