Even if the PKD symbol and the industry in which the entrepreneur operates indicate the provision of goods or services subject to VAT, the company can benefit from a VAT exemption if it does not actually carry out such activities.
Despite the neutrality of the goods and services tax, some entrepreneurs prefer not to pay VAT. This is especially true in B2C relationships where a 23% charge on the final price is a barrier to business operations. The regulations allow for VAT-exempted activity. To benefit from this, an entrepreneur must meet certain subjective and objective conditions. Does the fact of conducting an activity with a PKD subject to VAT tax prevent the use of the exemption?
VAT Exemption
As a rule, VAT is charged on the supply of goods and services. However, entrepreneurs can benefit from a subjective VAT exemption if their annual revenues do not exceed PLN 200,000. An objective exemption can also be granted. This exemption allows for not charging VAT on deliveries, regardless of the amount of revenue generated, provided that they are engaged in certain types of activities as stated in the legislation.
The Polish Classification of Activities (PKD) determines the type of business conducted by an entrepreneur. VAT taxable activities include consulting services (except agricultural consulting).
Engineering Activity and Related Technical Consulting
A general partnership has, among others, the activity of architecture, real estate brokerage, and engineering, and associated technical advice in its PKD. The company did not register for VAT, and its annual turnover did not exceed PLN 200,000 in the previous year.
However, the entrepreneur wanted to benefit from the VAT exemption, and inquired with the tax authority whether the industry in which he operates and the classification of its activity entered into the entrepreneurs’ register under the symbols PKD 71.11.Z – architectural activity, and 71.12.Z – engineering activity and related technical advice would prevent this.
The Authority Admitted that the Actual Nature of the Business Matters
The Director of the National Tax Information confirmed that if the entrepreneur only performs activities that do not include consulting services, he can benefit from the VAT exemption, according to the VAT Act.
Ultimately, it’s the Entrepreneur’s Decision whether to be VAT-Taxed
This case and the interpretation issued by the tax authority confirm that VAT taxation can be decided by the entrepreneur himself, as long as the type of activity he conducts is not obligatorily taxed, and the company does not exceed the statutory income limit.
Therefore, even if the PKD symbol and the industry in which the entrepreneur operates indicate the provision of goods or services subject to VAT, but in reality, the company does not actually carry out such activities, the company can benefit from a VAT exemption.
Everything depends on the actual nature of the business activity and the appropriate shaping of contracts concluded in economic turnover and transactions made.
Author: Robert Nogacki, legal counsel, managing partner at Skarbiec Law Firm, specializing in legal, tax, and strategic advice for entrepreneurs.
