Mandatory “split payment system” in Poland
The EU Council recently issued an implementing decision authorising Poland to introduce a mandatory “split payment system” for certain goods and services. The mandatory split payment system is designed to replace the current reverse charge mechanism in force for specific goods and services (e.g. copper wire, glass waste, paper and cardboard waste, secondary raw material from plastic, a vast range of construction works). However, in accordance with the Council’s decision, the existing list of goods and services subject to the reverse charge mechanism will be expanded to include, for example, vehicle parts and accessories, coal, motor fuels, animal and vegetable oils and fats, and computers. Consequently, the list of goods and services subject to mandatory split payment will include 152 product groups.
The mandatory split payment mechanism will apply to supplies between taxable persons, including those not established in Poland.
The EU Council has agreed for the system to be operative between 1 March 2019 and 28 February 2022. However, the changes have not yet been formalised into a published legislative proposal. The Director of the VAT department at the Polish Ministry of Finance has admitted in a recent interview that the mandatory split payment will not come into force until January 2020 at the earliest.
Cash-free import VAT settlement limited from 1 May 2019
Polish VAT regulations provide for two possibilities of import VAT settlement. In general, the VAT amount is reported in a customs declaration and paid to the customs authorities along with the customs duties at the time of importation. Then, the import VAT may be deducted in a VAT return.
Polish VAT regulations provide for a simplified cash-free procedure for import VAT. When applied, the VAT is reported in a VAT return through a reverse charge mechanism (input VAT = output VAT) instead of its payment to the customs authorities. To apply this simplification, some formal requirements must be met.
The simplified procedure for import VAT is popular along Polish taxable persons as it positively impacts cash flow (no VAT is paid to the customs authorities). However, from 1 May 2019 the possibility of applying this procedure will be restricted.
This results from the implementation of the EU’s Union Customs Code (UCC), through which new regulations regarding permits (authorisations) to use the simplified procedures have been introduced. Going forward, the customs declaration shall be lodged in the taxable person’s own name and on their own behalf or via an indirect representative. The use of permits obtained by a direct representative will no longer be possible.
Although the UCC entered into force on 1 May 2016, a three-year-transitional period was introduced to allow time for the reassessment of permits. The transitional period will soon come to an end. Consequently, from 1 May 2019 a taxable person will only qualify for the simplified import VAT settlement if:
- it has been granted the status of Authorised Economic Operator (AEO), or
- it has been granted its own customs simplification authorisation, or
- it cooperates with a customs agency that has the appropriate authorisation and acts as its indirect representative.
Bearing in mind the above, a reassessment of permits and representative agreements shall be made.