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ARPI Accounting

VAT Guide, part 3: Tax Liability

In the case of value-added tax (VAT), to even consider a tax liability, a tax liability must first arise. The tax obligation (i.e., the specific legal obligation to pay VAT) must occur at the time of the event that triggers the liability. This event is called the moment of tax liability.

Each tax has its own individual rules for establishing a tax liability. In the case of VAT, these are, of course, derived from EU law (the VAT Directive). In the Polish VAT Act, the moment of tax liability is defined in Section IV of the Act.

Tax Liability

According to Article 19a, Section 1 of the VAT Act, the general rule is that the moment of tax obligation is deemed to be the moment of delivery of goods or the moment of performance of a service. Tax liability arises at the moment of performance of the service, for example, the sale of goods – even if it has not been recorded on an invoice. This also applies to partial performance of a service (for which the remuneration has been determined). The tax liability will arise upon completion of a stage (part) of the service.

Therefore, a situation may arise when a tax obligation arises in a given month (e.g., a service performed at the end of the month), and an invoice can be issued in the following month (according to regulations, an invoice can be issued until the 15th day of the month following the month in which the goods/services were sold) with an additional 14-day payment deadline. In the example presented, the seller will be required to report the sale in the declaration, even though they have not yet received payment for the sale.

The above-mentioned rule is the general principle for VAT liability. Of course, the legislator has introduced many specific rules that allow for the tax liability to arise at a time other than the sale of goods or services.

When a single-purpose voucher is issued, the liability arises upon issuance of the voucher. This means that the issuance of the voucher is subject to taxation, even though the goods or services are transferred at a later date.

Services Billed in Settlement Periods

If a service is provided in consecutive settlement periods (e.g., monthly), meaning it is provided continuously, the tax liability will arise at the end of each period. Furthermore, if these services are provided for a period longer than one year and no payment/settlement periods expire within that period, the tax liability arises at the end of each tax year. For example, if someone provides accounting services, the tax liability will generally arise at the end of each month (as a rule, such services are provided and billed monthly).

Payment for a Service or Goods

Tax liability may also arise upon partial or full payment in certain situations. These include:

  • the transfer of goods to a commission agent;
  • the transfer of ownership of goods by order of a public authority or by operation of law (e.g., in the event of expropriation);
  • the sale of seized goods by a bailiff (as part of enforcement proceedings);
  • providing services commissioned by courts or prosecutors in connection with judicial or preparatory proceedings;
  • providing financial services exempt from VAT;
  • providing services as a bailiff as part of enforcement proceedings.

In the above situations, we will be referring to the so-called „cash accounting” – the obligation arises upon the transfer of funds (payment), not the transaction to which the funds relate. Furthermore, the cash accounting method is also possible for small taxpayers (taxpayers whose sales value, including the tax amount, did not exceed the limit of €2 million in the previous year). In such a situation, regardless of the nature of the sale of goods or services, the tax obligation arises upon receipt of payment.

It is also worth mentioning that an obligation may arise upon receipt of an advance payment. If an advance payment is received before the service is performed or the goods are delivered, the tax liability arises upon receipt of the advance payment – ​​of course, in relation to the advance payment amount received. Similarly, a tax liability arises upon receipt of a partial or full grant, subsidy, or additional payment.

Issuing an Invoice

One of the special rules is that the tax obligation may arise upon issuing an invoice. The regulations specify that this applies to:

  • the provision of construction and construction-assembly services,
  • the supply of printed books (with certain exceptions),
  • the printing of leaflets,
  • the supply of utilities (electricity, heat, refrigeration, and piped gas),
  • the distribution of utilities (electricity, heat, refrigeration, and piped gas),
  • telecommunications services,
  • rental services,
  • personal and property security,
  • regular office and legal services.

Additionally, in the case of imported goods, the tax liability arises upon incurrence of a customs debt.

Intra-Community Transactions with Tax Liability

Separate rules are provided for intra-Community supplies of goods and intra-Community acquisitions of goods. In the case of intra-Community transactions, the tax obligation arises when the taxpayer issues an invoice – provided that this cannot be later than the 15th day of the month following the month in which the actual delivery of goods took place.