A small entrepreneur and the obligation to settle VAT

Entrepreneurs who do not achieve high turnover or people who start running a business and do not plan high turnover from sales, may take advantage of the possibility of their sale being exempt from VAT.

Such a possibility is available to small entrepreneurs whose sales value in the previous tax year was not greater than PLN 150,000, and in the case of business activities opened during the tax year, the sales limit is calculated proportionally to the time of conducting business activity in a given year.

However, in the VAT Act, Art. 113 specifies that the amount of tax and certain transactions, such as:

• intra-Community supply of goods and mail order sales from the territory of the country and mail order sales within the territory of the country;

• supply of goods for consideration and provision of services for consideration, exempt from tax 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,

• insurance services,

if these activities are not ancillary transactions;

• 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.

The Act in Art. 113 paragraph. 13 also regulates that entrepreneurs who perform certain activities cannot benefit from the VAT exemption on the basis of small turnover. This exemption does not apply to taxpayers:

• making deliveries:

• goods listed in Annex 12 to the Act,

• 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 that are not new means of transport, classified by the taxpayer, under 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,

• construction areas,

• new means of transport;

• providing 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;

• who do not have their registered office in the territory of the country.

Taxpayers performing the above activities, even if their turnover is small, cannot benefit from the VAT exemption and must register using the VAT-R form as active VAT taxpayers.

Entrepreneurs who start a business and may be exempt from VAT due to the expected low turnover, are not required to submit any form or letter related to it to the tax office, or they may voluntarily submit a VAT-R form, in which they indicate that they choose the exemption with VAT. In such a situation, the head of the tax office will register the entrepreneur as a "VAT exempt taxpayer".

Important! Art. 113 sec. 11 of the VAT Act states that a taxpayer who has lost the right to exempt sales from tax or resigned from this exemption may, not earlier than one year after the end of the year in which he lost the right to exemption or resigned from this exemption, again take advantage of the exemption.

Small entrepreneur and sales documentation

Keeping simplified sales records

A small entrepreneur, who is exempt from VAT, is obliged to keep simplified sales records. Such records should be kept in a reliable manner so that it is possible to verify whether and when the taxpayer exceeded the turnover threshold being the basis for VAT exemption. Simplified sales records should contain at least the date of sale, the sum of sales on a given day and the value of sales recognized cumulatively from the beginning of the tax year.

Subsequent daily entries should be made at the latest before the sale begins on the next day.

Failure to comply with the above-mentioned rules and failure to keep or maintain unreliable sales records may lead to serious consequences. In such a situation, employees of the tax office, if it does not result from the documentation, must estimate the sales volume that has not been included in the records but should be subject to VAT, and then determine the value of the output tax. If it is not possible to determine the subject of sale, officials will apply the general tax rate, ie 23%. Additionally, the taxpayer may be fined as this act is punishable by the fiscal penal code.

Sales records using the cash register

The act on tax on goods and services imposes the obligation to record the sale at the cash register on taxpayers who sell to natural persons who do not conduct business activity and to flat-rate farmers. This obligation applies not only to active VAT payers, but also to small entrepreneurs who are exempt from VAT. This is evidenced by the special procedure developed in the VAT Act to apply for reimbursement of costs spent on the purchase of a cash register for taxpayers exempt from VAT.

Attention! Small entrepreneurs who are subject to or due to their turnover are exempt from VAT, register their revenues at the cash register as exempt from VAT.

However, the regulations provide for exemptions from the obligation to record sales with a cash register.One of them is the exemption for taxpayers whose sales during the year to natural persons who do not conduct business activity and lump-sum farmers do not exceed PLN 20,000. In a situation where the taxpayer starts operating during the year, the limit is calculated in proportion to the number of days remaining until the end of the tax year. The entrepreneur is obliged to install the cash register within two consecutive months, after the month in which he lost the right to the exemption.

Sales records - bill or invoice?

After the changes that were introduced on January 1, 2014 relating to the documentation of sales, small entrepreneurs should issue an invoice, not a bill (as it was until the end of 2013). Director of the Tax Chamber in Bydgoszcz in individual interpretation no. ITPP3 / 443-68 / 14 / AT of 16 April 2014 took the position that the document heading was not relevant. Nowhere in the regulations is it mandatory that an invoice must be marked as "Invoice", because an invoice is any document that contains data specified by the Minister of Finance. So nothing prevents small entrepreneurs exempt from VAT from continuing to issue bills - it is only necessary to ensure that they contain all the required data.

Important! Small entrepreneurs exempt from VAT are not obliged to issue an invoice - they are obliged to issue an invoice only if the buyer requests an invoice and reports this request within 3 months from the end of the month in which the goods were delivered, the service was performed or part or all of the payment was received.

Small business invoice - what should it contain?

An invoice issued by a small entrepreneur exempt from VAT due to low turnover may contain less data than an invoice issued by active taxpayers. The scope of data that must be included in an invoice issued by an entrepreneur exempt from VAT is specified by the Minister of Finance in the regulation of 3 December 2013 on invoicing. This scope includes:

a) date of issue,

b) consecutive number,

c) names and surnames or names of the taxpayer and the buyer of goods or services and their addresses,

d) name (type) of goods or services,

e) measure and quantity (number) of delivered goods or scope of services rendered,

f) unit price of a good or service,

g) the total amount owed.

Thus, this scope does not differ much from the data required on bills issued by the end of 2013.

A small entrepreneur and the settlement of EU transactions

Entrepreneurs exempt from VAT can make intra-community transactions. Below we will discuss all possible options for these transactions along with the correct method of their settlement.

Purchase of goods

In general, the purchase of goods from EU countries constitutes an intra-community acquisition of goods (intra-community acquisition of goods) and it obliges the buyer to settle this transaction according to the rules applied in intra-community acquisition. However, small taxpayers who, during the current and previous tax year did not exceed the limit of the amount of intra-Community purchases of goods (PLN 50,000 per year), settle accounts differently with WNT. This rule does not apply to the purchase of a new means of transport and excise goods, for which it is always necessary to settle the purchase according to the intra-Community acquisition rules.

The limit of PLN 50,000 does not include:

• the amount of value added tax due or paid in the territory of the Member State from which the goods are dispatched or transported,

• amounts for intra-Community purchases of new means of transport and excise goods.

In a situation where a small entrepreneur did not exceed the value of goods imported from the EU (PLN 50,000) in the previous year or in the current annual limit, the taxpayer is not required to submit any forms to the tax office, and does not have to register for EU transactions. However, his duty is to keep records of purchases of goods from EU countries in such a way that it is possible to determine on which day the taxpayer exceeded the limit of PLN 50,000.

When this limit is exceeded, a small entrepreneur is obliged to settle VAT on the entire transaction that contributed to the limit being exceeded. Tax on such transactions should be settled by a small entrepreneur on the VAT-8 form - it is submitted by the 25th of each month following the month to which the declaration relates. In addition, the taxpayer must also register for intra-Community transactions on the VAT-R form, selecting point 60 in part C.3 ..

Attention! If a small entrepreneur has to settle intra-community payments due to the exceeded limit of PLN 50,000, it does not mean that he must register as an active VAT payer (i.e. he may still benefit from VAT exemption in domestic transactions).

Even though there is no obligation, the taxpayer may voluntarily tax the purchase of goods from EU countries - to do so, he should submit a declaration to the head of the tax office by reporting the taxation of such a transaction or provide the contractor with his EU NIP (tax identification number). This choice is valid for 2 years from the date of taxable acquisition of goods from EU countries.

Sale of goods

When selling goods to EU countries, a small entrepreneur is not required to register for EU VAT, because according to Art. 13 sec. 6 of the VAT Act, the export of goods to the EU by a taxpayer exempt from VAT due to the amount of turnover does not constitute an intra-Community supply of goods (WDT). This rule does not apply when new means of transport are sold.

Small entrepreneurs who are exempt from VAT on the basis of low turnover and sell goods to EU countries should take into account the fact that this export, as mentioned above, does not constitute intra-Community supply. The VAT Act stipulates that the intra-Community supply of goods is not included in the limit of PLN 150,000, under which the taxpayer may or may not be exempt from VAT. So if the export of goods to the EU is not treated as intra-Community supply, it should be counted against the sales limit entitling to benefit from the VAT exemption.

Purchase of services

A small entrepreneur purchasing a service from EU countries must tax the purchase of these services with VAT. This is because the purchase is an import of services, and thus - the tax obligation rests with the buyer of the service.

In the VAT Act, Art. 17 sec. 1 point 4, the conditions that must be met for us to be able to talk about importing services have been precisely defined:

• the service provider is a taxpayer who does not have a registered office or a permanent place of business in the territory of the country, and in the case of real estate services, the taxpayer is not registered as an active or exempt VAT payer,

• the service recipient is:

• in the case of services to which Art. 28B (services, the place of performance of which is in the country of the buyer) - the taxpayer referred to in art. 15, or a non-taxable legal person referred to in art. 15, registered or obliged to register as an EU VAT taxpayer,

• in other cases - the taxpayer referred to in art. 15, having a registered office or a permanent place of business in the territory of the country or a non-taxable legal person referred to in art. 15, established in the territory of the country and registered or obliged to register for EU VAT.

Taxpayers who import taxable services in the buyer's country must register for EU VAT by submitting the VAT-R form. An exception to this rule is the import of services for which the place of service provision is determined in accordance with any other article, except for Art. 28b of the VAT Act, e.g. according to Art. 28e, relating to real estate services. In such cases, there is no obligation to register for EU VAT.

A small entrepreneur who submits VAT-8 declarations due to intra-Community acquisition of goods, may also settle the import of services on this declaration, but if he does not submit any declaration, he should settle these transactions on the VAT-9M declaration.

The deadline for submitting VAT-8 declarations differs from the deadline for submitting VAT-9M declarations. The VAT-8 declaration should be submitted by the 25th day of the month following each subsequent month, and the VAT-9M declaration - by the 25th day of the month following the month in which the tax obligation related to foreign transactions arose.

Sale of services

Entrepreneurs selling services to EU countries are not always required to register for EU VAT.

There is no such obligation for small entrepreneurs who provide services for which the place of providing the service is determined on the basis of a provision other than Art. 28b of the VAT Act. An example of such services are real estate services.

On the other hand, taxpayers - providing services to contractors-companies from EU countries, for which the place of service provision is determined on the basis of art. 28b of the VAT Act, are required to register for EU VAT purposes.

In addition, which is of course beneficial for a small entrepreneur - the value of services sold to EU countries does not increase the sales included in the VAT exemption limit. Therefore, a taxpayer who provides services to EU countries with a total amount of large amounts, despite the obligation to register for EU VAT purposes, will be able to benefit from the VAT exemption until domestic sales do not exceed PLN 150,000. Such conclusions can be drawn from Art. 113 paragraph. 1, of the VAT Act, saying: "Sales by taxpayers whose sales value did not exceed the total amount of PLN 150,000 in the previous tax year are exempt from tax." The word sale is the key here because according to Art. 2 points 22 of the same Act, which is a glossary of terms used in the Act, if the Act refers to sales, it shall be understood as: “paid delivery of goods and paid services within the territory of the country, export of goods and intra-community delivery of goods”. To sum up, the sale of services to contractors from outside Poland is not included in the sale, and thus, it is not included in the sales limit on the basis of which we can take advantage of the VAT exemption. This is confirmed by the individual interpretation no. ILPP4 / 443-556 / 13-4 / BA, issued on March 12, 2014 by the Director of the Tax Chamber in Poznań.