Return to VAT exemption during the year

Service-Tax

An entrepreneur starting a business at the very beginning must decide whether he wants to be an active VAT taxpayer or meets the conditions to benefit from the VAT exemption. It depends on his choice whether it will be necessary to submit the VAT-R form to the tax office and in what form the sales invoices will be issued. However, it sometimes happens that an active VAT payer wants to take advantage of the VAT exemption during the year. Can it return to VAT exemption? We raise the above issue in the article!

Who is not eligible for VAT exemption?

In art. 113 paragraph. 13 of the Act on tax on goods and services, a catalog of activities is listed, the performance of which does not allow for the VAT exemption. Such activities are, inter alia:

  • delivery of goods listed in Annex 12 to the above-mentioned acts,
  • supplies of goods subject to excise duty (with some exceptions),
  • delivery of buildings, structures or their parts,
  • delivery of construction sites,
  • delivery of new fixed assets,
  • providing legal services,
  • providing consulting services,
  • providing jewelery services.

Additionally, taxpayers who do not have their registered office in Poland cannot take advantage of the VAT exemption.

VAT exemption - return conditions during the year

Among entrepreneurs willing to take advantage of the VAT exemption again, there were many doubts as to the date from which they could return to the VAT exemption. In response to taxpayers' doubts, the Minister of Finance issued a general ruling of April 24, 2015, No. PT1.8101.4.2015.LBE.72 on specifying the date of re-using the exemption referred to in Art. 113 paragraph. 1 of the act on tax on goods and services, towards taxpayers who have lost the right to tax exemption or resigned from this exemption in order to establish a uniform tax law relating to the period of re-use of the exemption.

Pursuant to the ordinance of the Minister of Finance, the position presented by him regarding the date of return to the exemption by taxpayers who lost the right to exemption from tax or resigned from the exemption, remains valid in art. 113 (11) of the VAT Act, according to which: A taxpayer who has lost the right to exempt sales from tax or resigned from this exemption, may, not earlier than after one year from the end of the year in which he lost the right to exemption or resigned from this exemption, again use the exemption referred to in paragraph 1. 1.

In summary, the taxpayer may return to the VAT exemption during the tax year. However, it must meet certain conditions, such as:

  • cannot perform the supplies and services described in art. 113 paragraph. 13 of the VAT Act,
  • must have a registered office in the territory of the country,
  • the value of the sale may not exceed the total amount of PLN 200,000 in the previous tax year (pursuant to Article 113 (1) of the VAT Act),
  • at least one year must pass from the end of the year in which the dismissal was lost or resigned,
  • the taxpayer must be registered as an active VAT payer.

Pursuant to Art. 113 paragraph. 2 of the VAT Act, the sales value (...) does not include:
1. intra-Community supply of goods and mail order sales from the territory of the country and mail order sales within the territory of the country;
2. the supply of goods for consideration and the provision of services against payment, which are tax-exempt pursuant to Art. 43 sec. 1 or regulations issued on the basis of art. 82 sec. 3, with the exception of:
a) real estate transactions,
b) services referred to in Art. 43 sec. 1 points 7, 12 and 38-41,
c) insurance services
- if these activities are not ancillary transactions;
3. the paid delivery of goods which, pursuant to the provisions on income tax, are classified by the taxpayer as fixed assets and intangible assets subject to depreciation.

Example 1.

Entrepreneur Jan resigned in 2017 from the right to VAT exemption and registered as an active VAT payer by submitting a VAT-R form. In December 2017, it achieved the value of sales in the amount of PLN 70,550 and expanded its activity to the provision of jewelery services.

In 2018, he decided to return to VAT exemption. However, despite the fact that he did not exceed the limit of the value of sales, he will not be able to do so because he has expanded his business to include services that, according to Art. 113 paragraph. 13 of the VAT Act exclude the possibility of using the VAT exemption.

Example 2.

An entrepreneur starting a business in 2017 decided to become an active VAT taxpayer. In 2018, the taxpayer stated that it would be much more beneficial for him to be exempt from VAT. He will be able to do this no earlier than the beginning of 2019, because a full year must pass from the end of the year in which he resigned from the exemption. In addition, the entrepreneur will have to remember that in order to be able to return to the VAT exemption, he cannot exceed the sales limit - PLN 200,000. PLN in the tax year 2018.

An entrepreneur who decides to return to VAT exemption is obliged to submit to the appropriate tax office an update of the data on the VAT-R form within 7 days from the date of the change. He will do this in part C.1. form.

Return to VAT exemption and input tax correction

If, in the period in which the entrepreneur did not use the VAT exemption, he made purchases for taxable activity from which VAT was deducted, then in the case of returning to the VAT exemption, he will be obliged to correct VAT on certain expenses due to a change in their purpose. .

Expenditure

Value

Should an adjustment be made to the amount of tax deducted?

fixed asset and intangible and legal value

above
PLN 15,000

Yes. It should be made in stages, 1/5 (or 1/10 - for real estate or perpetual usufruct rights to land) in the VAT declaration submitted for the first accounting period of the year (January / Q1) following the tax year for which the adjustment is made.

equipment, fixed asset and intangible assets

below
PLN 15,000

Not. If 12 months have passed since the end of the billing period in which the assets were released for use.

Yes, if 12 months have not passed since the end of the billing period in which the assets were released for use. Then the adjustments should be made (once) after the end of the year in which they were put into use.

goods, materials and raw materials for production

undefined

Yes. It should be made (once) in the settlement period in which the purpose of the goods, which are in stock on the day of resignation from VAT settlement, has changed. In order to correctly determine the amount of the correction, it is recommended, but not required, to prepare a physical inventory (inventory).

Example 3.

In January 2017, the entrepreneur purchased a computer set for his business in the amount of PLN 6,000 net. He completely deducted VAT from the purchase. In February 2018, he decided to return to VAT exemption. Is the taxpayer required to correct the input tax on the purchased laptop?

There is no such obligation, as 12 months have passed since the property was put into use by the entrepreneur, and the value of the asset did not exceed PLN 15,000.

Income tax - does the return to VAT exemption affect it?

The return to the VAT exemption has consequences both in terms of VAT and income tax. In connection with the resignation from the VAT settlement, the entrepreneur must bear in mind that the amount by which he must reduce the input VAT in the correction will be a tax deductible cost for him. Pursuant to Art. 23 sec. 1 point 43 lit.and the Personal Income Tax Act, input VAT may constitute a tax-deductible cost for the entrepreneur if the taxpayer is exempt from value added tax or purchased goods and services in order to produce or sell goods or provide services exempt from tax goods and services.

This rule also applies to the value of VAT, which the active VAT taxpayer did not include in the initial value of the fixed asset or intangible assets. Thus, if there has been a reducing correction of the VAT deducted from the purchase of a fixed asset or intangible assets, its value can be classified as tax deductible costs. However, the Income Tax Act does not specify the date by which the value of the input VAT adjustment should be recognized in tax deductible costs. Therefore, it is considered that it should be included in the month (quarter) in which the correction of the VAT declaration related to the change in the use of the property should be submitted.

Correction of the input VAT due to the change of intended use does not result in the obligation to correct the initial value of the fixed asset or intangible assets.

A similar position was adopted by the Director of the Tax Chamber in Warsaw in the individual ruling of August 12, 2016: (...) in the case of a correction of VAT resulting in a reduction of the input tax after the expiry of the deadlines specified in art. 91 of the Value Added Tax Act, the corresponding increase in tax deductible costs in the corporate income tax, in the part in which this adjustment was made, should take place in the settlement period in which the VAT adjustment (...) was actually made. (...).

Although the cited interpretation concerns the annual VAT correction, it also applies when the entrepreneur wants to return to the VAT exemption and has to make the VAT correction in question.

Example 4.

The entrepreneur returned to the VAT exemption on February 7, 2017 and therefore conducted a physical inventory. He calculated that he has the remaining goods purchased for the taxable activity, so in the VAT declaration for February 2017 he must show a VAT adjustment on other purchases in relation to the deducted input tax due to the change in the intended use of commercial goods. The value of this adjustment should be included in the tax deductible costs in March 2017, i.e. in the month of submitting the VAT declaration for February 2017.
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How to return to VAT exemption in the wFirma.pl system?

An entrepreneur who uses the wFirma.pl system and decides to return to VAT exemption, can perform all related activities in the program.

Well, an entrepreneur can directly submit a VAT-R declaration from the tab START »TAXES» VAT TAX »ADD A DECLARATION» RATING VAT APPLICATION

After submitting the update of the VAT-R form on the day from which we start to use the exemption, it should be appropriately marked in the system in the tab: SETTINGS »TAXES» VAT TAX, by selecting the option VAT payer.