Subject exemption from VAT - is it possible for the Polish branch of a Czech company?

Service-Tax

Entrepreneurs from the Czech Republic quite often open so-called branch. The creation of new branches is aimed at entering the Polish market. Taxpayers registered in the Czech Republic as active VAT payers are wondering whether in the initial period of business activity in our country they can benefit from a tax relief, which is the subjective VAT exemption. Read and check!

Subject exemption from VAT

According to Art. 113 paragraph. 1 of the Act of March 11, 2004 on tax on goods and services (Journal of Laws of 2017, item 1221, as amended) - hereinafter referred to as the "VAT Act" - sales made by taxpayers are exempt from tax for which the value of sales did not exceed PLN 200,000 in total in the previous tax year. The amount of tax is not included in the sales value. Based on Article. 113 paragraph. 4 of the VAT Act, the taxpayers referred to in para. 1 and 9, may waive the exemption referred to in paragraph 1. 1 and 9, provided that a written notification of this intention to the head of the tax office before the beginning of the month in which they resign from the exemption, and in the case of taxpayers starting during the tax year, the activities referred to in article 1. 5, who want to resign from the exemption from the first action performed - before the date of performance of this action.

According to Art. 113 paragraph. 5 of the VAT Act, if the value of the sale is exempt from tax pursuant to sec. 1 exceeds the amount referred to in para. 1, the subjective exemption from VAT shall cease to have effect starting from the activities in which this amount was exceeded.

Pursuant to Art. 113 paragraph. 9 of the VAT Act, sales made by a taxpayer starting during the tax year are exempt from taxation of activities specified in art. 5, if the estimated value of the sale does not exceed, in proportion to the period of economic activity in the tax year, the amount specified in paragraph 1.

Pursuant to Art. 113 paragraph. 10 of the VAT Act, if the actual value of the sale is exempt from tax pursuant to sec. 9, in proportion to the period of economic activity, during the tax year will exceed the amount specified in paragraph 1, the exemption ceases to apply from the activities that exceeded this amount.

Pursuant to Art. 113 paragraph. 11 of the VAT Act, 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, reuse the exemption referred to in paragraph 1.

On the other hand, the provision of Art. 113 paragraph. 13 of the VAT Act provides that the exemptions referred to in para. 1 and 9, does not apply to taxpayers:

1. making deliveries:

    1. goods listed in Annex 12 to the Act,

    2. goods subject to excise duty, within the meaning of the provisions on excise duty, with the exception of:

  • electricity (PKWiU 35.11.10.0),

  • 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,

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

    2. construction areas,

    3. new means of transport;

2.providers of services:

    1. legal,

    2. 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,

    3. jewelery;

3. not having the seat of economic activity in the territory of the country.

Czech taxpayer - subjective VAT exemption

In order to illustrate the problem that is the subject of this article, we will use an example

Example 1.

An active VAT taxpayer from the Czech Republic, who trades in food products, wants to set up a branch in Poland. In the first year of operation, the planned sales turnover is to amount to approximately PLN 150,000. The taxpayer will not sell excise goods. According to the entrepreneur from the Czech Republic, he has the right to a subjective exemption from tax on goods and services in Poland.

At the outset, it should be emphasized that a branch of a foreign entrepreneur does not constitute a separate taxpayer of value added tax, as in a situation where a foreign enterprise registers its branch in Poland, it does not register a separate taxpayer, but rather registers its own enterprise. Therefore, despite the fact that there is a branch of a foreign entrepreneur operating in the territory of the country, the taxpayer of value added tax is still a foreign entrepreneur operating through a branch established for this purpose. So in our case, the taxpayer will be a foreign entrepreneur. In the light of the above provisions, as well as the presented facts, a taxpayer from the Czech Republic will not be able to take advantage of the relief, which is the subjective VAT exemption. Pursuant to Art. 113 paragraph. 13 point 3 of the exemptions referred to in para. 1 and 9, shall not apply to taxpayers who do not have a registered office in the territory of the country.

The above is confirmed by the judgment of the Supreme Administrative Court of February 28, 2018, file ref. no.I FSK 751/16:

(...) in the judgment under appeal, the PAC aptly referred the concept of the seat of a natural person's business to the place from which that person directs such activities (manages the enterprise), using the above-mentioned Implementing Regulation (EU) No 282/2011. In the facts described in the application for an individual ruling, there is no doubt that this place is the applicant's place of residence outside the territory of Poland. Thus, the exemption referred to in Art. 113 paragraph. 1 u.p.t.u.

The Supreme Administrative Court does not share the applicant's position that the interpretation of Art. 113 paragraph. 13 point 3 of the Act was of an expanding nature. If the legislator used in a provision implementing EU (Community) law a concept that has not been defined by law, the interpretation of such a concept must take into account the EU context and the purpose of a given regulation, which in the case under consideration was developed in the judgment of the ECJ in the case of C - 97/09. Contrary to the claims contained in the cassation appeal, the term "business seat" may also be applied to the economic activity of a natural person and, as correctly proved by the administrative court of first instance, identified with the place of residence of such a person. In such an extensive and multi-threaded, and also repeatedly amended normative act, which is the Act when interpreting provisions, terminological inconsistencies in provisions governing various legal institutions cannot prejudge the content of legal norms.