Application of the VAT exemption for a foreigner operating in Poland

The subjective exemption from VAT relating to the value of sales is one of the most frequently used tax preferences under the value added tax. However, it should be considered whether it is possible to apply the VAT exemption on the same terms for a foreigner operating in Poland and residing in another country. It is this subject that will be the subject of our analysis.

Subject exemption from VAT

At the beginning, it should be noted that the VAT Act uses a very broad definition of economic activity, which means that the subjective scope of the VAT Act includes not only typical entities conducting economic activity, but also natural persons who use their private assets continuously and for purposes earning money.

A classic example is an individual leasing private property. In such circumstances, we are dealing with the provision of services for consideration and falling within the scope of VAT.

Naturally, a large group of taxpayers benefit in this respect from VAT exemption, referred to as subjective exemption.

Pursuant to Art. 113 paragraph. 1 of the Act, sales made by taxpayers whose sales value did not exceed the total of PLN 200,000 in the previous tax year are exempt from tax. The amount of tax is not included in the sales value.

Pursuant to Art. 113 paragraph. 9 of the Act is exempt from tax sales made by the taxpayer starting during the tax year performing the activities specified in art. 5, if the estimated value of the sale does not exceed, in proportion to the period of economic activity in the tax year, the amount specified in paragraph 1.

However, a question arises whether a foreigner living abroad and running a business in Poland may benefit from the above exemption. This issue will also apply to the above-mentioned natural persons who permanently live in another country and rent real estate located in Poland.

Application of the VAT exemption for foreigners - exemptions

The VAT Act specifies cases in which the use of the subjective exemption from VAT is completely excluded.

Based on Article. 113 paragraph. 13 point 3 of the Act on exemptions referred to in sec. 1 and 9, shall not apply to taxpayers who do not have a registered office in the territory of the country.

The Polish VAT Act does not explicitly define the concept of "business seat". However, such a definition can be found in Regulation 282/2011, where we can read that the place of the taxpayer's registered office is the place where the functions of the company's general management are performed.

For its determination, account is taken of the place where the important decisions relating to the general management of the company are taken, the address of the registered office of the company and the place where the company's board of directors meets. Where these criteria do not allow the place of establishment of the taxpayer's place of business to be determined with certainty, the decisive criterion is the place where the relevant decisions relating to the general management of the enterprise are taken. The postal address itself cannot be considered as the place of business of the taxpayer (Article 10 of the Regulation).

If the taxpayer's business activity is located in a country other than Poland, the economic activity conducted in the territory of the Republic of Poland may not benefit from the subjective exemption referred to in Art. 113 of the VAT Act.

Business seat and place of residence

There is no doubt that the term "business premises" refers to economic operators.

The provisions on tax on goods and services do not use the term "seat" in relation to natural persons, but only to legal persons and organizational units without legal personality.

Therefore, there are doubts in the situation of foreigners who are natural persons. They do not have a business seat, but a place of residence.

The analysis of the available case law and interpretations issued by the tax authorities leads to the conclusion that in the case of a natural person, the place of residence is equal to the place of residence.

As indicated by the Director of KIS in the interpretation of November 27, 2020 (No. the very seat of business activity in the territory of the country. As a consequence, a taxpayer who has his place of residence abroad and conducts activities subject to VAT taxation in Poland will have to pay VAT on each turnover.

An analogous position is taken by administrative courts, an example of which is the judgment of the Supreme Administrative Court of February 28, 2018 (I FSK 751/16), where it was explicitly indicated that the use of Art. 113 paragraph. 13 point 3 of the VAT Act, the term "taxpayer without / without a registered office" should be applied both to taxpayers conducting business activity in the form of organizational units and as a natural person.

As a result, a natural person residing in another country who conducts business in Poland (including private rental) cannot benefit from the limited exemption specified in Art. 113 of the VAT Act.

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Example 1.

A natural person has permanent residence in Germany. In Poland, he owns a commercial property that he rents. In such a case, it cannot benefit from the subjective exemption from VAT. All services rendered will have to be taxed.

By the way, let us point out that if a foreigner who is a natural person rents a residential property in Poland, he cannot take advantage of the subjective exemption, however, there is nothing to prevent him from applying the objective exemption specified in Art. 43 sec. 1 point 36 of the VAT Act.

Let us recall that pursuant to this provision, services in the field of renting or leasing real estate of a residential nature or part of a real estate, for own account, solely for residential purposes are exempt from tax. The exemption from the subjective exemption applies to both legal persons based outside Poland and natural persons residing outside the territory of the Republic of Poland.

Determining the place of residence of a foreigner

Contrary to the PIT Act, in terms of value added tax, we do not have any regulations defining and determining the place of residence of a natural person.

In this connection, reference should be made to the available case law which gives some guidance in this regard.

According to the WSA in Warsaw in its judgment on November 4, 2015 (III SA / Wa 239/15), the seat of a natural person's business should be understood as the place where the most important decisions in the field of general management of this activity are made. If the activity of a natural person is conducted in a place other than his place of residence, the place of residence of this person should be considered the seat of business, because it is there that the most important decisions of a natural person in the scope of managing this activity are taken.

On the other hand, in the judgment of the Supreme Administrative Court of September 14, 2018 (I FSK 1776/16), we can read that the fact of the location of real estate in Poland from which income is generated, or coming to Poland several times a year for purposes related to renting and general references the fact that the premises owned in Poland are intended for meetings with tenants, cannot prove that the seat of the business is in Poland.

Therefore, proceeding to the summary of our analysis, it should be emphasized that a foreigner operating in Poland cannot benefit from the subjective exemption from VAT. This applies both to natural persons residing in another country, as well as to legal persons and organizational units without legal personality based outside the Republic of Poland.