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Poland: VATable and non-VATable transactions in Poland – allocation of input VAT


Marta Szafarowska

Those dealing with VAT in other EU countries are surprised that, so far in Poland, taxpayers making both VATable transactions as well as activities that do not fall within the VAT regime, are entitled to deduct the whole amount of VAT resulting from purchases of goods and services where direct allocation to VATable and non-VATable activities is not possible.

The above solution has been particularly attractive to municipalities, but also to certain kinds of holding companies. However, to put an end to this situation, the Ministry of Finance has proposed new provisions that come into force from January 2016.

Under the new provisions, taxpayers performing both VATable transactions and activities that do not fall within the VAT scope will be obliged to deduct input VAT in line with the proportion representing the allocation of goods and services to those streams of activities. Then, once input VAT allocated only to VATable activities is established, it will be deducted on a pro rata basis (representing allocation of purchases to supplies subject to VAT and exempt).

The new provisions provide several methods to establish the initial proportion – the taxpayer should choose the most appropriate one for his individual situation. The methods refer to: (i) average number of employees dealing only with VATable transactions to average total number of employees; (ii) average number of hours devoted only to VATable transactions to total number of hours; (iii) turnover generated from VATable transactions to total revenues; and (iv) the surface of the building used for VATable transactions to total surface of the premises.

Throughout the year, taxpayers will be deducting VAT based on the initial proportion, established based on data available from the previous year. After the year-end the actual proportion will be calculated and the deduction corrected.

In general, those new rules will affect municipalities and public bodies performing also VATable transaction. Nevertheless, VAT deduction by certain types of holding companies may also be affected.

Marta Szafarowska (


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