Small Taxpayers – or Slim VAT 3

On 1 June 2023, the President signed into law the Act Amending the Value Added Tax Act and Certain Other Acts of 26 May 2023. The main objective of the act, known as the “Slim VAT 3”, is to further simplify the settlement of Value Added Tax. The vast majority of the provisions came into force on 3 July 2023. 

The most important changes introduced to the VAT Act include:

1. Raising the sales value threshold (including the amount of tax) below which a business has the status of a small taxpayer to the PLN equivalent of EUR 2,000,000;
2. Modifying the rules and procedures for issuing, amending and repealing the Binding Rate Information;
3. Defining rules whereby a VAT payer can apply the conversion rate for a correcting invoice, if the original invoice was issued in a foreign currency;
4. Modifying the rules on a VAT payer reporting an intra-Community supply of goods at the rate of 0%;
5. Clarifying the definition of personal luggage of a traveller arriving from a third country to Poland, used for the purpose of exempting goods imported in such luggage from VAT on arrival;
6. Abolishing the requirement for a payer of VAT to hold an invoice documenting an intra-Community acquisition of goods as a condition for exercising the right to reduce the amount of output tax by the amount of input tax on that account;
7. Liberalising the prerequisites for a faster refund of VAT to taxpayers making non-cash transactions;
8. Modifying the rules on determining VAT sanctions.

The increase in the sales value threshold under which the status of small taxpayer depends in the context of the VAT Act is an important step for businesses. Until July 2023, this threshold was the PLN equivalent of EUR 1,200,000. Now, in accordance with Article 167a of the VAT Directive, Poland has raised this threshold to the PLN equivalent of EUR 2,000,000. This means that businesses whose sales do not exceed this new value can obtain the status of a small VAT taxpayer. It is worth noting that conversions from euro to zlotys are made on the basis of the average exchange rate announced by the National Bank of Poland on the first working day of October of the previous year, rounded up to the nearest thousand zlotys. This extension of the threshold has the potential to bring more favourable conditions for businesses and lead to further economic activity.

The institution of the small taxpayer allows businesses to enjoy privileges not enjoyed by larger entities. Such taxpayers have the right to decide and choose between two options:

• VAT settlement on a cash basis;
• VAT settlement on a quarterly basis, instead of monthly.

If the first option is chosen, i.e. the cash accounting method, the business must settle VAT quarterly – except during the first 12 months from registering for VAT, when it settles VAT on a monthly basis.

On the other hand, if the choice of quarterly accounting is made, there is no obligation to use the cash accounting method.

If a business loses its small taxpayer status during the year, by exceeding the sales threshold of the PLN equivalent of EUR 2 million:

• It switches from quarterly to monthly settlement, submitting monthly declarations starting from the settlement for the first month of the quarter:
  • in which the business exceeded the threshold – where this occurred in the first or second month of the quarter; if it exceeded the threshold in the second month of the quarter, the declaration for the first month of the quarter is submitted by the 25th day of the third month of the quarter;
  • Following the quarter in which the business exceeded the threshold – where this occurred in the third month of the quarter.
• It will lose the right to account for VAT on a cash basis only starting from the settlement for the month following the quarter in which the threshold was exceeded.

What is the cash accounting method?

The concept of the cash accounting also needs clarification. A trader sells goods or provides a service to another trader and pays VAT only when it receives payment for the invoice. If it sells goods or provides a service to a non-business person, it must pay VAT when it receives payment, no later than 180 days after the goods or service were delivered.

The choice of the cash accounting method and the notification to opt out of it is submitted using the official VAT-R form.

It is worth noting that even a small taxpayer cannot use the cash accounting method in the following cases:

• Intra-Community supply of goods;
• Import of services;
• The supply of goods as a result of the transfer of a single-purpose voucher;
• The release of goods by the principal to the commission agent under a commission contract;
• Transfer by order of a public authority of ownership of goods in exchange for compensation;
• The supply of goods by way of enforcement, as referred to in Article 18 of the VAT Act;
• The provision on behalf of courts of services related to court or pre-trial proceedings, with the exception of services covered by Article 28b of the VAT Act, which constitute the import of services;
• The provision of tax-exempt insurance services, such as the granting of credit facilities or loans and credit intermediation;
• Receipt of grants, subsidies and other similar payments.

How do we assess these changes? Positively, due to the increase in the number of taxpayers entitled to use the cash accounting method and quarterly VAT accounting.