In December 2017, the President of Poland signed legislation amending the Goods and Services Tax (VAT) Act ("VAT Act") to introduce what is known as a split payment mechanism. The provisions introducing split payment for VAT transactions will become effective on 1 July 2018.
How it works
The split payment mechanism is based on the assumption that an invoice is paid by the customer into two separate bank accounts:
- the net amount is paid to the supplier’s business account;
- the VAT amount is paid directly to a dedicated account of the supplier, known as a VAT account.
Taxable persons will not be obliged to open separate bank accounts for the purpose of collecting and paying VAT. The bank will automatically open a VAT account for each taxable person in Poland as a subaccount under the person’s existing account(s). This applies also to foreign entities registered for VAT purposes in Poland and with Polish bank accounts.
Split payment will be applicable only to payments made in PLN via PLN accounts operated by Polish banks.
New split payment mechanism model
The Polish split payment mechanism differs from those which have been implemented in Italy and Romania. Firstly, the scope of the Polish split payment mechanism is much broader than in Italy: it will be applicable to all VAT registered businesses in Poland. However, unlike the Romanian split payment mechanism, the Polish one will be optional. The choice as to whether or not to apply it will generally be at the discretion of the customer. Thus, if so instructed by the recipient of an invoice, the bank will split the payment amount so that VAT will be transferred by the bank directly to supplier’s VAT account, while the net amount will be transferred to its business account.
Consequences for businesses
Under this new mechanism, although funds in the VAT account will belong to the supplier, the supplier will not be able to use them freely. Such funds may be spent only in specific ways mentioned in Polish regulations, including:
- to pay invoiced VAT to the VAT account of the invoice issuer;
- to pay VAT to the tax authorities.
Transfers from a supplier’s VAT account to its business account will require specific approval from the Polish tax authorities.
In this situation, businesses are advised to consider if and how the split payment mechanism may affect their cash flow, procurement and payment procedures, as well as the operation of their accounting system. Also, suppliers who do not wish their customers to make split payments would have to consider how to achieve their goal.
Incentives for businesses to opt for
Split payment will not be mandatory. However, certain incentives will be offered to encourage taxable persons to choose the split payment mechanism, e.g. a 25-day VAT refund deadline.