From the 1st January 2018, Poland will introduce a voluntary anti-VAT Fraud split payment mechanism. This system will ONLY apply on domestic transactions and will not affect invoice requirements. B2C transactions WILL NOT be impacted by these changes, only business to business sales.
We have not received information about the possibility of opting for this mechanism by non-established entities who are VAT registered in Poland.
What exactly is the split payment mechanism?
Under the usual rules of VAT, the supplier issues an invoice for the net amount and the VAT amount to the customer; the customer will then pay the gross amount (net and VAT) to the supplier, who should then collect it and pay this to the tax authorities. Now under this split VAT payment mechanism, the supplier should also issue an invoice for the net and VAT amounts, however, the customer will only pay the net amount to the supplier. The VAT share should be paid directly to the tax authorities, hence eradicating the ‘collection’ role of the suppliers.
Unfortunately, the disadvantages fall on the supplier side, as they will not be able to compensate input VAT with output VAT. This will increase VAT refund amounts and cash-flow disadvantages. However, the tax authorities will receive their money earlier.
Due to this being a voluntary regime in Poland, the European Commission is not required to approve this system. Italy introduced a similar mechanism on supplies to public entities. In this case, the Commission recently allowed an extension of this regime.
The mechanics of the new system in Poland
Every business in Poland who voluntarily selects the split payments mechanism, which should be established by the end of 2017 by any Polish bank, and provided without fees, will have at least two bank accounts. Their usual business bank account where they receive payments for their day to day business; and a VAT bank account where they must pay VAT on their purchases. This system requires robust co-operation from banks and financial institutions.
The new system has incentives
Taxpayers selecting the new split VAT payment mechanism by the end of the year, will benefit from a number of simplifications on their tax compliance:
- Fines are reduced where most input VAT is ‘paid’ with this system;
- VAT credit will be received as early as 25 days from the moment the VAT is transferred to the VAT bank account, compared to the existing 60 days;
- Joint tax liability of the customer is cancelled when supplying certain goods, such as IT equipment, fuel and others;
- Companies participating in this scheme will not be held jointly and severally liable to VAT fraud in their supply chain;
Italy already uses the split payment system for public service B2B transactions.
amavat Europe provides a one-stop-shop solution for VAT obligations within Europe. We assist clients with a single point of contact that speaks their language and handles all VAT related issues with a standard and cost efficient approach.
If you have any queries or questions, please do not hesitate to contact amavat Europe.
To find out more information please visit www.amavat.eu