VAT is compulsory for many businesses, but not everyone has to pay it. Some companies can take advantage of VAT exemption or, under certain conditions, opt out of paying it. Is it possible to opt out of VAT? What conditions must be met to return to VAT exemption? Is it possible to opt out of VAT during the year?
When is it possible to opt out of VAT?
Not every entrepreneur has to be a VAT payer. The law provides for the possibility of VAT exemption for companies that meet certain conditions. VAT opt-out is possible in two cases:
- When the entrepreneur meets the conditions for VAT exemption, his annual turnover does not exceed a specific limit (in Poland, it is PLN 200.000).
- When the business activity includes services or goods that are exempt from VAT due to their nature, such as certain educational, medical, or financial services.
If the company meets these conditions, it can apply to opt out of VAT and return to exemption.
Can VAT be waived during the year?
Many entrepreneurs wonder whether VAT opt-out is possible at any time during the fiscal year. The answer depends on the basis on which the company became a VAT taxpayer:
- If a company has voluntarily registered as a VAT payer, it can opt out after at least one year of registration.
- If the company exceeds the turnover limit (200.000 zlotys) but then its revenues fall, it can return to the exemption from the new fiscal year.
- Resignation from VAT during the year is possible if the business no longer meets the conditions for being a VAT taxpayer, such as when the nature of the business changes and the company starts providing VAT-exempt services.
Resignation from VAT during the year is possible if the business no longer meets the conditions for being a VAT taxpayer, such as when the nature of the business changes and the company starts providing VAT-exempt services.
How to opt out of VAT?
An entrepreneur must complete certain formalities to opt out of VAT and return to exemption. The process involves several steps:
- Checking whether the company meets the conditions for exemption - the most important criterion is the turnover limit of PLN 200.000.
- Submission of an application to the tax office - the entrepreneur must submit a VAT-Z form, which informs of ceasing to be a VAT taxpayer.
- Updating the entry in CEIDG—If the company operates as a sole proprietorship, it may be necessary to update the entry in the Central Register and Information on Economic Activity (CEIDG).
- VAT settlement—Before giving up VAT, the entrepreneur should close all tax liabilities, including showing VAT on fixed assets and goods purchased earlier with a tax deduction.
Remember that the tax office may inspect the company to confirm whether the VAT resignation complies with the regulations.
Return to VAT exemption - when is it possible?
An entrepreneur who was an active VAT taxpayer but wants to return to exemption must meet certain conditions. A return to VAT exemption is possible when:
- The company was a VAT taxpayer for at least one year.
- Its annual revenues did not exceed PLN 200.000.
- The company is not engaged in activities excluded from the exemption, such as not trading in electronics or vehicles requiring VAT registration.
The entrepreneur must file a notice of return to exemption with the tax office, preferably before the start of the new tax year.
VAT resignation and fixed assets
One of the most critical aspects of VAT resignation is the issue of fixed assets previously purchased with a VAT deduction. What happens to them after returning to exemption?
- If an entrepreneur has deducted VAT on the purchase of a fixed asset, and its value exceeds PLN 15.000, they may be required to adjust the VAT deducted.
- The VAT adjustment applies to fixed assets for 5 years and real estate for 10 years. Thus, if a company enjoyed a VAT deduction for 3 years, it must return a proportional part of the tax for the remaining 2 years when giving up the VAT.
- For smaller purchases (less than PLN 15.000), VAT adjustment is not required, meaning the entrepreneur does not have to return the previously deducted tax.
Before deciding to give up VAT, it is worthwhile to carefully analyze the value of fixed assets and the potential tax consequences.
VAT opt-out - what should be kept in mind?
The decision to opt out of VAT should be well thought out, as it can affect the company’s financial situation and relations with contractors. Here are some key points to keep in mind:
- Inability to deduct VAT - a business, not a VAT payer, cannot deduct tax from purchase invoices.
- Changing contractors' attitudes - Some companies prefer to work with VAT payers because they can deduct VAT on purchased services and goods.
- Obligation to adjust VAT on fixed assets - in the case of expensive investments, the company may have to refund part of the deducted tax.
- Changes in accounting records - once a business has opted out of VAT, it must issue invoices without the tax and use appropriate markings on sales documents.
- Possibility to return to VAT - If the company again exceeds the turnover limit or decides to register as a VAT taxpayer, it must make the appropriate application to the tax office.
Resignation from VAT is possible for companies that meet the conditions for subjective exemption or are engaged in subjectively exempt activities. Resigning from VAT one year after registration or if the company has not exceeded the PLN 200,000 annual turnover limit is possible.
However, entrepreneurs should consider the potential tax consequences, especially regarding fixed assets and the adjustment of deducted VAT. Before deciding to opt out of VAT, it is advisable to consult an accountant and carefully analyze the impact of this change on your business.
