Service-Tax

Converting invoices in foreign currencies for VAT purposes

Converting invoices in foreign currencies into Polish zlotys raises considerable doubts among taxpayers. Will the changes in the regulations concerning the invoice issuance dates affect the conversion rules? What courses should be used? Answer below.

The appropriate rate for VAT purposes - converting invoices in foreign currencies

The issue of applying the appropriate exchange rate for VAT purposes is regulated in Art. 31a paragraph. 1 of the act on tax on goods and services. According to its wording, if the amounts used to determine the tax base are specified in a foreign currency, conversion into zlotys is made according to:

the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last business day preceding the day when the tax obligation arises or
the last exchange rate published by the European Central Bank on the last day before the date on which the tax arises (in the case of currencies other than the euro, it is converted using their respective conversion rates against the euro).

Regulations concerning the conversion of invoices in foreign currencies, as a rule, have not changed compared to the regulations in force in the previous year.

What if the invoice date and the tax liability are different?

At this point, two situations should be mentioned - the first is to issue an invoice before the tax obligation arises under VAT, the second - to issue an invoice after the date on which the tax obligation arises.

The Slim VAT package introduced additional simplifications related to the use of the VAT conversion rate. The legislator allowed taxpayers to use a conversion rate such as that for income tax purposes, thanks to which there is no need to make separate calculations. An additional condition is the use of this method of converting transactions in a foreign currency for at least 12 consecutive months from the month in which the taxpayer decided to use the common conversion rate.

Issue of an invoice in a foreign currency before the tax obligation arises

If the taxpayer issues an invoice before the tax obligation arises, and the amounts used to determine the tax base are indicated on this invoice in a foreign currency, the conversion into zlotys is made according to the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last business day preceding the day issuing an invoice (or the ECB rate referred to above), in accordance with Art. 31a paragraph. 2 of the VAT Act.

Such situations may occur with high frequency, as pursuant to Art. 106i paragraph. 7 of the VAT Act, the taxpayer has the right to issue a sales invoice 30 days before:

delivery of goods or performance of a service;
receiving, prior to the delivery of goods or the performance of a service, all or part of the payment.

The regulations concerning the moment when the tax obligation arises also indicate situations in which the VAT obligation arises at the time of issuing the invoice (e.g. construction services, construction and assembly services, delivery of printed books), then conversion into Polish zlotys should be made at the average exchange rate of the National Bank of Poland on the last day working hours preceding the day when the tax obligation arises (i.e. the date of issuing the invoice).

Example 1

The invoice in a foreign currency was issued on January 13, 2021, the goods were delivered on February 4, 2021. What exchange rate should be converted into zlotys when booking an invoice for VAT purposes?

The invoice should be converted at the average exchange rate of the National Bank of Poland (or the ECB) on the last business day preceding the issue of the invoice, i.e. at the exchange rate on January 12, 2021.

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Issuing an invoice in a foreign currency after the tax obligation arises

In a situation where the taxpayer draws up an invoice in a foreign currency, after the tax obligation arises, conversion into zlotys is made according to the average exchange rate of a given foreign currency announced by the National Bank of Poland on the last business day preceding the date of the tax obligation (or the ECB exchange rate referred to above) ).

Example 2

The taxpayer delivered the goods on January 8, 2021. He issued the invoice on February 15, 2021 (in accordance with the principles set out in Article 106i (1) of the VAT Act). At what exchange rate should the conversion be made?

The invoice should be converted at the average exchange rate of the National Bank of Poland (or the ECB) on the last business day preceding the emergence of the tax obligation (delivery of goods), i.e. at the exchange rate on January 7, 2021.

In the case of collective invoices, the exchange rate must be converted separately for each transaction.

Mail order sales in foreign currency

In connection with the shipment delivery, the tax obligation under VAT will arise on the date of receipt of the goods by the buyer. The appropriate rate for converting the amount of income expressed in a foreign currency into PLN will be the average exchange rate of the National Bank of Poland on the day preceding the day of receipt of the goods by the buyer.

Advances at WDT and WNT

In the case of advance payments, both for intra-Community supplies and intra-Community supplies, the taxpayer is not obliged to prepare invoices or internal documents, or to convert the transaction into Polish zlotys.

In principle, the taxpayer will be required to convert both of these transactions at the average exchange rate of the National Bank of Poland (or the ECB) on the last business day preceding the issue of the invoice. However, if the taxpayer does not have an invoice, the conversion should be made at the rate of the day preceding the 15th day of the month following the delivery of the goods.