Subject exemption from VAT - who is entitled to?

Service-Tax

Not every entrepreneur conducting business activity is obliged to register as an active VAT taxpayer, because the taxpayer may benefit from the subjective or objective exemption from VAT. At the same time, not all taxpayers can take advantage of such solutions. Check who is subject to VAT exemption!

What is a subjective VAT exemption?

Entrepreneurs are entitled to the subjective exemption from VAT due to the turnover limit. Pursuant to Art. 113 paragraph. 1 of the VAT Act:"Sales by taxpayers whose sales value did not exceed PLN 200,000 in total in the previous tax year are exempt from tax. The tax amount is not included in the sales value."

Thus, the legislator clearly defines the nature of the exemption - the taxpayer is not released, but the sale made by him. A taxpayer who wants to take advantage of the subjective exemption in the first year of operation may take advantage of the tax relief if the estimated value of sales does not exceed, in proportion to the period of business activity in the tax year, the amount of PLN 200,000.

Subjective VAT exemption - which sales are not included in the limit?

In art. 113 paragraph. 2 of the VAT Act, there is a catalog of activities that are not included in the sales limit allowing for the subject exemption from VAT. Among them, the following were distinguished:

  • intra-Community supply of goods and intra-Community distance sales of goods that are not subject to taxation within the territory of the country;

  • distance sales of imported goods that are not subject to tax in the territory of the country
  • 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:

    • real estate transactions,

    • services referred to in art. 43 sec. 1 points 7, 12 and 38-41 (including transactions related to currencies and banknotes, investment fund management services, granting loans and other financial instruments),

    • insurance services,

- if these activities are not ancillary transactions;

  • a paid delivery of goods, which, pursuant to the provisions on income tax, is classified by the taxpayer as fixed assets and intangible assets subject to depreciation.

Who is not covered by the subjective VAT exemption?

Art. 113 sec. 13 of the VAT Act specifies the catalog of taxpayers who are not eligible for exemption due to the turnover limit. And so - from the first sale, active taxpayers should be those who:

  • make deliveries:

    • articles made of precious metals or with the participation of these metals, antiques with an age exceeding 100 years (applies to artistic jewelery), materials for carving of plant or mineral origin, worked and articles made of such materials - Annex 12 of the Act

    • 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,
    • buildings, structures or parts thereof, in the cases referred to in Art. 43 sec. 1 point 10 lit. a and b of the Act,

    • construction areas,

    • new means of transport;

    • 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, including:
      • cosmetic and toilet preparations (PKWiU 20.42.1),
      • computers, electronic and optical products (PKWiU 26),
      • electrical equipment (PKWiU 27),
      • machines and devices not elsewhere classified (PKWiU 28);
    • wholesale and retail parts for motor vehicles and motorcycles;
  • provide services:

    • legal,

    • 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,

    • jewelery,

    • debt collection (including factoring);
  • not having a registered office in the territory of the country.

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Loss of the right to subjective exemption

The subjective exemption ceases to apply as from the activity in which the limit amount has been exceeded. In other words, the right to personal exemption from VAT expires exactly on the day on which the statutory limit of PLN 200,000 of turnover is exceeded. The activities are not divided in order to accurately set the limit of PLN 200,000, and the entire activity that resulted in exceeding the sales limit specified in the Act is taxed. Therefore, the volume of turnover in a given year should be monitored on an ongoing basis.

The subjective exemption shall cease to have effect as from the activity in which the amount entitling to the exemption is exceeded.

Resignation from the subjective exemption

The regulations allow taxpayers to decide to resign from the subjective exemption before the turnover limit is exceeded. For this purpose, it is necessary to submit the VAT-R registration form to the competent tax office. In such a case, the application for resignation from the dismissal should be submitted before the month from which the resignation is to take place.

Importantly, the taxpayer has the right to deduct the tax on purchases made before resignation from the exemption and does not have to prepare additional documents for this purpose. However, he should remember that the reduction applies to the goods unsold up to the date of waiver of the exemption. Only these goods can be considered to be used for taxable activities, i.e. meeting one of the basic conditions for deducting input VAT on purchases.