VAT on financial services for business

From the beginning of January 2022, service providers from the financial industry (including banks or investment funds) will be able to voluntarily decide to tax their services with VAT. As a result, it will be associated with the advantageous possibility of deducting the tax included in the costs of purchased goods and services.

The Polish Deal amendments extended Polish tax law like that in other European countries, for example, Germany. The new tax option applies only to VAT on financial services for businesses (i.e. services used by entrepreneurs).

This option is new in a country where business financial services are generally VAT exempt. Note that before the entry into force of the amendments, only the so-called auxiliary financial services, which are part of more general service, were subject to VAT.

VAT on financial services – basic information

At the outset, it should be emphasized once again that the described change concerns specific financial services for business. Services provided to natural persons are exempt from VAT and cannot be subject to tax liability.

Companies that decide to tax financial services must remember a few basic rules. Firstly, adding VAT to services will not be selective – it will apply to all such services without exception. Therefore, there is no room for preferential matching in the regulations. Secondly, the new option can be selected for a minimum duration of 2 (consecutive) years. After this deadline, it will be possible to opt-out or extend the taxation.

To start using taxation, you must register as an active VAT payer and notify the head of the relevant tax office through a written declaration. This should be done before the start of the VAT billing period (month or quarter). The resignation procedure is similar (after 2 full years of VAT payment) – you will also need a written application to the governor with information about the resignation from taxation.

Financial services covered by regulations

According to the act, the regulations cover financial services such as:

• transactions (including those related to brokerage, currency, banknote transactions);
• investment fund management services;
• providing, inter alia, credits, and loans related to financial instruments;
• insurance services;
• services in the field of granting sureties, guarantees, and other transaction security.

The law also provides for situations when a given entity is already an active VAT payer and plans to offer the above-mentioned services for business (doing so outside its core business). In such a case, entities that fall within the scope of the provisions in question may submit to the head of the tax office notification on the choice of taxation of the above services before the beginning of the accounting period. This will be tantamount to resignation from the exemption and they will avoid calculating the proportion of deduction of input VAT on purchases.

Who will benefit from the change?

The possibility of VAT-taxing a new segment of services and goods always opens up a favorable tax deduction and is a universal advantage. The regulations focus on financial services, therefore the solution may turn out to be beneficial for new companies, which are only just building their presence on the market, and which use this type of services abundantly (e.g. credit services). Analysts also expect an increase in investment traffic for entities from the financial sector. Thanks to the described change, Polish law has become friendlier, in particular for financial institutions.