January 1, 2025, Poland introduced significant changes to its Value Added Tax (VAT) Act. These reforms are designed to make tax compliance easier, streamline processes, and bring Poland’s VAT regulations more in line with European Union (EU) standards. Whether you’re running a small local business or operating across EU borders, these changes will have a direct impact on how you handle VAT. Here’s everything you need to know to get ready!
What’s Changing?
1. Simplified VAT Exemptions for Small Businesses
Currently, small businesses that operate in other EU countries where they don’t have a registered office must register for VAT right from their first sale. This involves handling multiple filings and payments in different countries, which can be a lot to manage. Plus, VAT exemptions are often limited to domestic companies, creating hurdles for foreign businesses.
What’s new in 2025?
- Simplified VAT Exemptions: Small Polish businesses that operate in other EU countries will now qualify for VAT exemptions under the same conditions as local businesses.
- Streamlined Registration: The Polish tax office will handle VAT exemption applications for businesses operating abroad, making the process much easier.
Key Thresholds to Keep in Mind:
- Poland’s Exemption Threshold: PLN 200,000 annually.
- EU-Wide Turnover Threshold: EUR 100,000. If you exceed this limit across all EU member states, you lose your VAT exemption privileges in every country.
This will make VAT compliance much simpler, especially for small businesses that operate in multiple EU countries.
Additionally, businesses will benefit from the expanded VAT exemption threshold calculation, which now includes intra-community supplies of goods and reinsurance services, provided these services are not auxiliary in nature.
2. New VAT Rules for Virtual Services
If your business provides virtual services—like live-streamed events, online courses, or virtual concerts—there’s a major change coming in 2025.
What’s changing?
- VAT Based on Consumer Location: Instead of VAT being applied where the service originates, it will now depend on where the consumer is located.
For example, if a Polish company streams a concert to viewers in Germany, France, and Spain, the VAT rates in each of those countries will apply.
This change ensures that VAT is collected where the service is consumed, making the tax system fairer and in line with EU standards
3. Adjustments to VAT Rates
Along with these changes, Poland will be updating VAT rates for specific products and services:
- 0% VAT for rescue vessels and lifeboats.
- 8% VAT for medical devices.
- Reduced VAT for menstrual cups to promote sustainability.
These updates will help businesses in these sectors by reducing the VAT burden on important goods and services related to health, sustainability, and safety.
4. Administrative Simplifications
To make things even easier for businesses, Poland is introducing several administrative changes that simplify VAT compliance:
- Expansion of the Reverse Charge Mechanism: This will make cross-border transactions easier by shifting the responsibility for VAT reporting from the supplier to the customer.
- No Need for Integration of Cash Registers with Payment Terminals: This requirement is being eliminated, reducing technical hurdles for businesses.
- Mandatory Fiscalization for Vending Machines: Vending machines will need to comply with fiscalization rules to ensure accurate VAT reporting.
These changes are designed to help reduce the workload for businesses, particularly smaller ones, and help them stay compliant with less effort.
Additional Updates You Should Know:
1. Expanded VAT Exemption Threshold Calculation
Starting in January 2025, Poland will adjust the VAT exemption threshold calculation to include intra-community supplies of goods and certain reinsurance services.
2. Implementation of the SME Directive
The SME Directive will simplify VAT settlements for small and medium-sized enterprises across the EU. This includes both domestic and cross-border schemes, making compliance easier for SMEs.
3. Changes in Excise Duty
Effective March 1, 2025, excise duty rates will increase for certain products like tobacco and e-liquids. This is crucial for businesses in related sectors to monitor.
4. Digital Accounting Requirements
Poland will gradually introduce mandatory digital accounting for businesses, enhancing tax reporting accuracy and streamlining the VAT compliance process.
5. Real Estate Tax Changes
Changes to real estate tax definitions and obligations will impact property owners and lessees, and businesses should review these changes to ensure accurate tax reporting.
6. VAT Grouping
Poland has introduced VAT grouping for related entities, which allows businesses to be treated as a single taxable person for VAT purposes, simplifying VAT compliance for groups of companies.
7. Updates on KSeF (National e-Invoicing System)
Poland is updating its Krajowy System e-Faktur (KSeF), the national e-invoicing system. These updates aim to improve VAT reporting, making it easier for businesses to comply.
8. VAT Number Format and Currency
Poland uses PL1234567890 as the VAT number format for international transactions and 1234567890 for domestic-only traders. The Zloty (PLN) is the currency for VAT calculations.
How These Changes Benefit Small Businesses
The overall goal of these VAT reforms is to simplify compliance and make it easier for small businesses to operate, both locally and across borders. Here’s how these changes benefit you:
- Reduced Administrative Burden: With the Polish tax office handling VAT exemption applications for foreign operations, businesses will spend less time on paperwork.
- Fairer Competition: Harmonizing VAT rules across the EU will allow Polish businesses to compete more easily with local firms in other EU countries.
- Revenue Redistribution: VAT will be collected in the country where services are consumed, ensuring fair distribution of VAT revenues.
These reforms level the playing field and make it easier for small businesses to compete in the EU market.
How to Prepare Your Business for 2025
So, how can you get your business ready for the new rules? Here’s a quick checklist:
1. Review Your Operations
- Check your turnover across the EU to ensure you stay within the exemption limits. If you exceed EUR 100,000 across all EU member states, you’ll need to register for VAT in each country you do business in.
2. Upgrade Your Systems
- Invest in tools to help you:
- Track the location of your customers for virtual services.
- Apply the correct VAT rates for each country based on customer location.
- Monitor your turnover in real-time to avoid crossing the exemption threshold.
3. Consult with a Tax Expert
- It’s always a good idea to speak with a tax advisor or accountant who is familiar with the new rules. They can help you:
- Navigate the complexities of cross-border VAT compliance.
- Identify ways to save time and reduce administrative costs.
4. Stay Informed
- Keep an eye on updates from the Polish Ministry of Finance and your local tax office. Laws can change, and staying updated will ensure a smooth transition to the new system.
Real-Life Examples: How the Rules Will Work
To better understand how the new rules will work, let’s look at some examples:
- Scenario 1: Small Business Exemption
A Polish artisan sells handcrafted items to customers in Germany. Under the current rules, they must register for VAT in Germany after their first sale. Starting in 2025, the artisan will be able to apply for a VAT exemption through the Polish tax office, simplifying the process.
- Scenario 2: Virtual Services
A Polish company streams an online seminar to customers in France and Italy. Under the new rules, the company will need to apply VAT rates based on the country of each customer.
- Scenario 3: Exceeding the EU Threshold
If a small Polish business exceeds the EUR 100,000 turnover limit across the EU, they will lose their VAT exemption privileges in all member states and will need to register for VAT in every country they operate in.
Final Thoughts
Poland’s 2025 VAT reforms are a significant step forward in simplifying tax compliance for small businesses and aligning with EU standards. These changes will create fairer competition, reduce administrative burdens, and ensure VAT revenues benefit the countries where services are consumed.
As the implementation date draws near, now is the time to prepare. Review your operations, upgrade your systems, and consult professionals to ensure a smooth transition.
TaxDo is here to support your business in managing tax obligations across borders with ease. Our comprehensive solutions—from VAT compliance to turnover tracking—ensure you stay ahead in the evolving tax landscape. Whether you’re looking to streamline your VAT processes or navigate complex regulations, TaxDo’s expert tools and services have got you covered. Try our VAT compliance tools today and schedule a free consultation with our experts to make sure your business stays compliant with the latest reforms. Don’t wait—take full advantage of these updates and simplify your VAT operations. Pro Tip: Use TaxDo’s automated VAT rate calculation tool to easily manage cross-border VAT applications, track turnover in real-time, and ensure compliance with the new thresholds and location-based VAT rates.
