VAT rate - how to determine it on the invoice?

Service-Tax

VAT is a tax on goods and services. If the entrepreneur voluntarily registers as a VAT payer, he is obliged to issue invoices for the net amount, increasing them by the amount of VAT. The entrepreneur must then ensure that the VAT rate is correctly determined.

VAT rate - types

In Poland, the basic VAT rate is 23%. However, if the entrepreneur suspects that the sold goods or services are taxed at a rate other than the standard rate, he should check whether the reduced VAT rate applies in a given case.

In order to determine the correct VAT rate, the taxpayer should rely on the VAT Act and the Regulation of the Minister of Finance on goods and services for which the VAT rate is lowered and the conditions for applying reduced rates. In the event that the entrepreneur still does not know which VAT rate should apply, he may ask the tax office for assistance in resolving this matter.

In Poland, in addition to the standard VAT rate, we distinguish the following tax rates:

  • 8% - a reduced rate, it is used, inter alia, for the sale of construction works, medicines and pharmaceutical products, newspapers and magazines, as well as for some catering services;

  • 5% - a reduced rate, it covers, inter alia, food, agricultural products and books;

  • 0% - this VAT rate is intended primarily for foreign transactions with other companies from the European Union (among others, it is used for the export of goods and intra-Community delivery of goods).

In addition to the above rates, two other types of markings are used for specific transactions. These are:

  • ZW (VAT exemption) and

  • NP (not taxable).

Taxpayers have the option of being exempt from VAT. This exemption may be subjective or objective. The entity exemption will be used by entrepreneurs whose turnover limit did not exceed PLN 200,000 in the previous financial year. Taxpayers who perform specific activities, e.g. doctors.

On the other hand, the designation NP is used by entrepreneurs when selling services outside Poland. In this case, it is the buyer's responsibility to calculate and pay the tax.

0% VAT rate and ZW marking

It often happens that entrepreneurs set the VAT rate as 0% instead of the ZW marking on the sales invoice. Despite the fact that in the case of an exempt sale and with a 0% rate, there is no VAT amount, in the case of sales with a 0% VAT rate, the entrepreneur has the option to deduct VAT from the expenses related to this sale. On the other hand, in the case of the ZW rate, the entrepreneur cannot deduct VAT from the costs that relate to exempt sales.

If the entrepreneur incorrectly set the VAT rate to 0% instead of marking the given sale as GC, he must correct the VAT declaration for the period in which he showed this tax to be deducted.

Incorrect VAT rate - what are the effects of using an incorrect rate?

It happens that the entrepreneur, as a result of a mistake or ignorance, incorrectly determines the VAT rate of the goods or services sold. If:

  • the VAT rate has been overstated - for example, the entrepreneur made a mistake and instead of entering the 8% VAT rate, he set a 23% rate. The good or service was sold at a higher price, and a higher tax was paid to the tax office (on the VAT rate of 23% instead of 8%). The seller may or may not issue a credit note at the lower rate. In order to recover the overpaid amount, in addition to issuing a correcting invoice, he is obliged to submit a correction of the VAT declaration;

  • the VAT rate has been underestimated - for example, the entrepreneur, due to ignorance, when issuing a sales invoice for the goods, set the VAT rate of 8% instead of 23%. Due to the fact that the tax liability due to VAT has been understated, it is necessary to issue a corrective invoice as soon as possible, taking into account the correct VAT rate. If the VAT declaration has already been sent, a correction of the declaration for this period should be prepared. Then you also have to pay VAT with any interest. If such a situation is discovered during the inspection, you must additionally take into account the commencement of penal fiscal proceedings.