VAT deduction is one of the key elements of the Polish tax system that allows entrepreneurs to significantly reduce the actual costs of running a business. Although the general principle of VAT deduction seems straightforward, in practice it often raises numerous questions and doubts. This applies both to domestic companies and to foreign entities conducting business activities in vat in Poland.
Input VAT and Output VAT – understanding the difference
To properly understand how VAT deduction works, it is essential to distinguish between two concepts: input VAT and output VAT.
Input VAT is the tax included in the price of goods and services purchased by an entrepreneur for business purposes. Output VAT, on the other hand, is the tax that the entrepreneur is required to add to the price of goods or services sold, in accordance with the rules set by the tax authorities. In practice, VAT deduction means reducing the amount of output VAT payable to the tax office by the amount of input VAT incurred.
Who is entitled to deduct VAT in Poland?
The right to deduct VAT is granted exclusively to active VAT taxpayers. This means that the entrepreneur must be properly registered for VAT and must actually perform taxable activities. Another key condition is that the purchased goods or services must be used for VAT-taxable business activities. If a business is VAT-exempt, the right to deduct VAT generally does not apply.
What expenses can be deducted from VAT in Poland?
Entrepreneurs may deduct VAT, among others, on expenses related to:
- the purchase of goods for resale and raw materials,
- accounting, consulting, and marketing services,
- computer equipment and office furnishings,
- costs directly related to day-to-day business operations.
Special rules apply to VAT deduction on company cars, fuel, and expenses of a mixed nature, meaning those used both for private and business purposes.
VAT deduction in special cases – cars, fuel and deadlines
According to Polish VAT regulations, entrepreneurs may deduct VAT in compliance with specific statutory conditions. These rules are particularly important in industries where assets or services are used in different ways, requiring careful assessment of the right to deduction.
VAT deduction on company cars and fuel
For passenger cars used in business activities, entrepreneurs are generally entitled to deduct 50% of the VAT. Full 100% VAT deduction is only possible if the vehicle is used exclusively for business purposes and additional formal requirements are met, such as maintaining a detailed mileage log.
VAT settlement deadlines
Input VAT may be deducted in the settlement period in which the tax obligation arose or in one of the subsequent reporting periods. Failure to meet statutory deadlines may result in the loss of the right to deduct VAT or the need to submit corrective tax returns.
Most common VAT deduction mistakes in Poland
The most frequent errors include:
- deducting VAT from invoices issued by entities not registered for VAT,
- lack of a clear connection between the expense and taxable activity,
- formal errors on invoices,
- exceeding statutory deadlines for VAT deduction,
- incorrect VAT deductions related to cars and fuel.
VAT deduction by foreign companies
Foreign companies operating in vat in Poland or registered for VAT purposes may also benefit from VAT deduction, provided they meet all legal requirements. In practice, this often requires a detailed analysis of the business model and proper preparation of tax documentation.
VAT deduction in Poland is a crucial element of tax optimization but requires thorough knowledge of applicable regulations and strict compliance with procedures. Correct VAT settlements not only reduce tax burdens but also help avoid disputes with tax authorities and costly corrections. In case of uncertainty, professional tax assistance is strongly recommended. More information and expert support can be found at polishtax.com. You will find here all the essential information related to tax records in Poland.
