VAT resignation from an already operating company - is it possible?

Pursuant to the VAT Act, an entity making a sale, the value of which did not exceed PLN 200,000 in total in the previous tax year, may benefit from VAT exemption. How should VAT waiver be carried out? When are the consequences? Let's check it out!

Resignation from VAT of an already operating company

In 2020, the limit for the subjective VAT exemption is PLN 200,000 of turnover. Art. 113 sec. 11 indicates that persons who have exceeded this limit or voluntarily resigned from this exemption may return to it at the earliest after one year, counting from the end of the year in which they lost the right to exemption or resigned from it themselves. The condition is, of course, not to exceed the aforementioned turnover limit of PLN 200,000. Taxpayers who started operating during the year, the limit is calculated in proportion to the number of months that the enterprise has operated in a given year.

How to report a return for release?

Return to the subjective VAT exemption should be reported by updating the VAT-R form, in which the status of the taxpayer will change from active VAT to VAT exempted taxpayers. In this case, the application must be submitted no later than 7 days from the date on which the exemption was selected.

Who cannot take advantage of the subjective VAT exemption?

It should be remembered that not all entrepreneurs can benefit from the subjective exemption from VAT despite meeting the required sales limit. The exemption applies, inter alia, to entrepreneurs supplying goods subject to excise duty (with the exception of electricity), precious metal products, as well as those providing jewelery or legal services, in the field of consultancy.

Watch out for the consequences

It must be remembered that when using the subjective exemption, you are not entitled to deduct input tax. Therefore, if a taxpayer has goods purchased at the time when he was an active VAT payer and from which he deducted VAT, it may be necessary to make adjustments to the deducted tax. The intended use of the goods changes, the connection of which with the taxable activity becomes the connection with the activity exempt from VAT. The adjustment may also be related to the assets classified by the taxpayer as fixed assets and intangible assets subject to depreciation, the initial value of which exceeds PLN 15,000, as well as the right of perpetual usufruct of land.

How this adjustment is made depends on whether it relates to an asset, equipment, or merchandise.

VAT adjustment - fixed asset with an initial value exceeding PLN 15,000

If the taxpayer resigns from settling VAT, he has in stock goods that, in accordance with the provisions on income tax, are classified as fixed assets or intangible ), whose initial value exceeds PLN 15,000, will be required to correct the deducted VAT within 5 years, and in the case of real estate and perpetual usufruct rights to land - within 10 years. When returning to the subject exemption from VAT, the taxpayer will show such a correction in individual VAT returns submitted at the beginning of subsequent years (monthly settlement - January; quarterly - for the first quarter), starting from the year following the year in which the taxpayer resigned from the VAT settlement, until the end of the correction period (1/5 or 1/10 of the tax deducted respectively).

VAT correction - equipment and fixed assets with the initial value not exceeding PLN 15,000

If the taxpayer who returns to the subjective exemption from VAT, while he was an active VAT taxpayer, purchased equipment or fixed assets with an initial value not exceeding PLN 15,000, and deducted VAT upon their purchase and the goods are in possession of the goods on the day of resignation from the exemption from VAT must correct the tax. In this case, the correction of the deducted VAT on these goods is made in the declaration for the accounting period in which the right to tax reduction was changed (Article 91 (7c) of the VAT Act).

However, this adjustment is not made if 12 months have elapsed since the end of the settlement period in which the goods or services were released for use.

VAT correction - commercial goods

In the event that the resignation from VAT covers commercial goods or raw materials and materials, the input tax correction is made in the tax declaration submitted for the accounting period in which the change took place. So similar to the equipment and fixed assets not exceeding PLN 15,000.