VAT Grouping in Poland delayed until 2023

Earlier this year, companies celebrated the news that Poland has decided to join the list of nearly 20 EU countries implementing VAT Grouping. The joint settlement of VAT (VAT grouping) is an eagerly anticipated VAT simplification option for VAT-related companies. The rule was expected to take effect from 1 July 2022. However, recent updates from Parliament indicate that they have not yet completed the reviewing process, and the option for VAT grouping has been delayed until 1 January 2023. 

Fortunately, it’s not postponed indefinitely and we can expect it to come into full swing as businesses enter the new year. In the interim, here’s everything you need to know about Polish VAT Grouping and how it simplifies the VAT process.

What is VAT Grouping?

Currently, VAT-related entities must collect tax on goods and services separately. This means that although taxpayers are financially or organisationally related, when it comes to VAT, they’re obliged to remain legally separate. This leads to having individual VAT numbers, issuing VAT invoices for intra-group transactions and separately submitting JPK_VAT files. 

However, the new VAT Grouping rule acknowledges a simpler way to approach VAT for registered businesses, allowing them to share a single VAT number and consolidate their reporting into one return. 

The advantages of VAT Grouping

One of the most significant advantages of the VAT grouping option is that it mitigates the need for VAT on intra-group transactions. These transactions will now be zero-rated; consequently, there will no longer be a need to issue VAT invoices for these intragroup transactions. An added plus is that no split payment accounting would be necessary either. In addition, as the turnover within the group is not subject to VAT, there is no longer a need to verify the contractor in the White List of Taxpayers. 

Moreover, the VAT Group will be required to file only one VAT return and it will need only one bank account to handle VAT refunds and receive payments. The VAT Grouping option also allows for more advantages in terms of VAT settlements. Where one member of a VAT group has larger amounts of output tax payable, and others have an excess of input tax deductible, VAT can be settled swiftly and effectively. , This allows VAT groups to utilise input VAT more effectively and mitigates the need to wait for a VAT refund. 

Polish VAT Groups 101: What you need to know

The overarching rule is that businesses must be established in Poland and share close financial, economic and organisational links before they can be considered a VAT group and a single taxable entity. The option to create a Polish VAT group is extended to domestic entities and Polish branches of foreign undertakings - regardless of their legal form and size.

However, to ensure that your business fully utilises the opportunity, there are additional specifics that will apply to Polish VAT groups, including: 

• VAT grouping will be optional. Companies can apply for a VAT group or remain separate entities if they feel inclined. 
• VAT grouping is also open to permanent establishments and branches. 
• VAT debts and penalties will apply to the entire group; each member is jointly and severally liable.
• Once approved as a VAT group, it is no longer possible to file VAT returns as a single entity, and a group must submit a single consolidated return.
• There will be a minimum time period of three years for a VAT group. 

Ultimately, creating VAT groups is embedded in simplifying processes and optimising VAT returns. Therefore, most requirements are established to encourage businesses to apply the solution. However, lawmakers have to stress one critical condition regarding a ‘financial link’ between entities. 

Financial Criterion for Polish VAT Groups

As stated earlier, one core rule defines a VAT Group (financial, economic and organisational links). Organisational links are easy to confirm and mean that entities are under common management and agreement. The economic link ensures that the principal activity of the members is of the same nature - easy. 

However, the financial link can often cause confusion, so it’s important to clarify it from the get-go. 

Poland adopted the 50% equity participation criterion. This means that one of the taxpayers within the VAT Group must hold at least one of the following:

• Over 50% of the share capital 
• Over 50% of the votes in the governing body
• Over 50% of the rights to participate in the profit of each of the other taxpayers in the VAT group.

Until then - here’s the deal

Although Polish authorities have confirmed that VAT Grouping will find its foothold in the Polish VAT return system - it hasn’t been without a few delays. So until the effective date, businesses still need to be well-informed about the current VAT process in Poland. For more information on Polish VAT rates, download our latest table here. 

Alternatively, you can utilise VAT IT’s knowledge and technology to process your refunds quicker and attend to any unforeseen VAT authority queries that may arise in Poland. 

You don’t have to do it alone. Count on us and make your VAT returns count.