On November 20, 2024, the President of Poland enacted significant amendments to the Value Added Tax (VAT) Act, alongside various related regulations. This reform aims to align Poland’s VAT framework with European Union standards, notably those set out in EU Council Directive 2020/285 and EU Regulation 904/2010.
The new provisions, which will come into force on January 1, 2025, include several key updates intended to simplify VAT compliance for small businesses, revise the determination of service supply locations, and adjust applicable VAT rates.
VAT Exemption for Small EU Businesses
One of the most noteworthy changes, effective in 2025, is the introduction of exemptions for small businesses operating across the EU. This update will not only benefit Polish companies but also businesses from other EU member states that conduct operations in Poland. To qualify for this exemption, companies must first register for Value Added Tax in the country where they are operating and submit quarterly reports detailing their turnover in each jurisdiction.
The exemption applies to Intra-Community supplies of goods and select services, such as non-ancillary reinsurance, with Poland’s exemption threshold set at PLN 200,000 annually. However, exceeding the EU-wide turnover threshold of EUR 100,000 will result in the loss of VAT exemption privileges across all EU member states. The Ministry of Finance estimates that this change will help reduce the administrative burden for around 10,000 businesses.
Revised Criteria for Determining the Place of Service Supply
Starting in 2025, significant adjustments will be made regarding how the place of supply is determined for various services, including cultural, artistic, sporting, educational, and entertainment events. These reforms are particularly important for businesses and consumers, especially when it comes to virtual events.
1. New Guidelines for Taxable Services
For services such as fairs, exhibitions, or conferences that are streamed online, service providers will no longer need to register for Value Added Tax in the host country. Instead, the reverse charge mechanism will be applied, meaning that the customer’s home country will be responsible for settling it.
2. Consumer Services Adjustments
Businesses will be required to determine the residence of each consumer to apply the correct VAT rates. For example, if a Polish provider streams a virtual concert to viewers in France, Germany, and Spain, the appropriate rates for each of those countries will need to be applied.
3. Impacts on Consumer Costs
This change may result in higher costs for consumers in certain jurisdictions. For instance, a German consumer attending an event streamed from a non-EU country will now be subject to the German VAT rate. This adjustment could have significant effects on virtual services offered by organizers from countries with lower rates.
Objectives of the Value Added Tax Reforms
The reforms introduced by Poland are driven by several key goals:
- To adapt the tax system to the increasing prevalence of online and virtual events.
- To promote fair competition across the EU by ensuring uniform treatment of services, regardless of their origin.
- To improve revenue collection in consumer countries and limit opportunities for tax arbitrage from jurisdictions with lower rates.
Updates to VAT Rates
Several modifications to rates will take effect on January 1, 2025:
- A 0% for rescue vessels and lifeboats.
- An 8% for medical devices.
- Adjustments for live equines and hemp products.
- A reduction on menstrual cups to support sustainability efforts.
Additional Amendments to the Value Added Tax Act
Along with changes to rates, the amendment also includes several important regulatory updates:
- Clarification on Fertilizers and Animal Feed Regulations.
- Expansion of the Reverse Charge Mechanism to simplify VAT processes.
- Elimination of the requirement to integrate cash registers with payment terminals.
- Mandatory fiscalization of vending machines to ensure accurate tax reporting.
These changes reflect Poland’s ongoing commitment to modernizing its tax system in line with EU directives, all while striving to create a more favorable environment for small businesses and consumers alike.
Conclusion
The upcoming Value Added Tax amendments mark a significant shift in Poland’s tax landscape, aligning its regulations with European Union standards and introducing provisions that will simplify tax compliance for small businesses. With a focus on digital services, fair competition, and enhanced revenue collection, these changes will help shape a more streamlined and efficient Value Added Tax system within the EU.
As businesses prepare for these reforms, staying informed about the updated regulations will be essential for ensuring compliance and optimizing operations across the EU.
