17 January 2025

VAT exemption for small business

The new regulations, which aim to introduce new facilities for small businesses conducting cross-border activities, will be in force in all EU countries from January 1st 2025.

VAT exemption. According to the draft amendment to the VAT Act, entrepreneurs who are based in another EU Member State and registered in Poland for VAT purposes will be able to benefit from the exemption from this tax if their annual turnover does not exceed 200,000 PLN. The changes result from the implementation of Council Directive (EU) 2020/285 and Regulation (EU) No. 904/2010.

VAT exemption – key information

According to the definition, the exemption does not apply to taxpayers, and according to the Act: taxpayers are legal entities, organizational units without legal personality, and individuals who independently conduct business activities, regardless of the purpose or result of such activity.

Before 2025, foreign companies that start trading in Poland could not benefit from domestic tax relief and must charge VAT from the first transaction. The same applies to small Polish companies that sell in other EU countries, which forces them to register for VAT purposes in a given country.

A subjective exemption from VAT is available to companies that had a turnover of no more than 200,000 PLN in the previous tax year. For companies just starting their business, the limit is proportional to the period of conducting business in a given year. This exemption means no obligation to pay VAT, but also the inability to deduct input VAT.

Conditions

The condition for using the exemption is not to exceed the sales limit, which includes paid delivery of goods, paid provision of services, export of goods, and intra-community delivery of goods.

VAT exemption up to a specified limit depends not only on whether entrepreneurs do not exceed the established amount but also on the type of business activity conducted. By Article 113 paragraph 2 of the VAT Act, up to the value of sales referred to in paragraph 1, does not include, among others:

• intra-community supply of goods (ICS) and distance selling of goods within the EU, which are not subject to taxation in Poland,
• distance selling of imported goods, which are not subject to taxation in the country,
• paid supply of goods and services exempt from VAT based on specific regulations, except transactions concerning real estate or selected services,
• paid supply of goods classified as fixed assets and intangible assets, subject to depreciation, by the income tax regulations.

Exceeding the limit may therefore not mean losing the exemption if the sale concerns, for example, exempt services.

Find out more by contacting ARPI Accounting experts.