VAT group in Poland

From this article, you will learn:

• what conditions must be met by the taxable person to join the VAT group;
• what the tax settlements within the VAT group are;
• what must be included in the agreement to create a VAT group.

From January 1, 2023 - in accordance with the Polish Deal - the so-called "VAT groups" began to operate in Poland, under which related entities can neutrally settle tax on goods and services. The aim of this new institution is to reduce the scope of administrative duties, reduce the number of documents in circulation and increase the financial liquidity of companies using such a solution. In theory - only pluses. And in practice? Here is a short summary of the most important information that should be kept in mind by Polish taxpayers considering joining a VAT group.

Who can join a VAT group?

In practice, any entity that is a Polish taxpayer can become a member of a VAT group. This institution is intended for all forms of enterprise organization. It can be established by both natural and legal persons, as well as organizational units without legal personality (e.g. civil law partnerships, general partnerships, limited liability partnerships, limited partnerships or limited joint-stock partnerships).

According to Art. 15a. (2) of the Act on tax on goods and services, a VAT group may be created by entities that:

• have registered office in the territory of the country
  or
• do not have their registered office in the territory of the country, to the extent, in the territory of the country through a branch located in the territory of the country.

Therefore, if a domestic entity with a foreign branch becomes a member of a VAT group, this branch will not be a member of the said group.

However, if a foreign entity operating in Poland through a branch becomes a member of a VAT group, then, in accordance with the provisions of the Polish Deal, only the part of the enterprise that is a branch will enter the VAT group. This means that the remaining (foreign) part of the enterprise will not be considered a member of the VAT group and, consequently, any transactions between the branch and the main unit, which is based in another country, will be taxed.

Conditions for joining a VAT group

In order for economic entities to be able to jointly form a VAT group, they must be related financially, economically and organisationally.

According to Art. 15a. (3), entities are financially related when one of the members of the VAT group has, for each of the other taxpayers who are members of this group, directly:

• more than 50% of shares in the share capital, or
• more than 50% of voting rights in controlling, constituting or managing bodies, or
• more than 50% of the right to participate in the profit.

Pursuant to Art. 15a. (4), taxpayers are considered economically related if:

• the main activity of the members of a VAT group is of the same nature, or
• the activities carried out by the members of the VAT group are complementary and interdependent, or
• a member of the VAT group carries out activities which are wholly or largely used by other members of the VAT group.

In the case of organizational links, art. 15a (5) indicates that taxpayers are considered to be related if:

• in law or in fact, directly or indirectly, they are under common management, or
• organize their activities wholly or partly in agreement.

It is also worth noting that the simultaneous conditions of financial, economic and organizational links between participants of a VAT group must exist throughout the entire period of the group's existence (and continuously).

How to create a VAT group?

After discussing the conditions for joining a VAT group, the further part of the VAT Act contains a reservation that each entity may be a member of only one VAT group, and that a VAT group may under no circumstances be a member of another such group.

In order to conclude an agreement that allows the creation of a VAT group, entities must draw up an agreement in writing. The document must contain:

1. the name of the VAT group, with the additional designation "VAT group" or "VG";
2. identification data of the taxpayers forming the VAT group, including details of the branch in the case of a taxpayer not established in the territory of the country and the amount of the share capital of each of the taxpayers belonging to the VAT group;
3. indication of the representative of the VAT group, appointed from among its members;
4. identification data of shareholders and the amount of their share in the share capital of taxpayers forming the VAT group, holding more than 50% of shares in the share capital of these taxpayers;
5. the period for which the VAT group was created, which cannot be shorter than 3 years.

How do tax settlements in a VAT group look like?

The legislator describes in art. 8c (1)(2) what the internal and external settlements in a VAT group look like against the background of the tax on goods and services. Within the group itself, supplies of goods and services by a member of a VAT group to another member of the same VAT group are not taxable. On the other hand, as regards external transactions, the supply of goods and services made by a member of a VAT group to an entity outside this VAT group is considered to have been carried out by this VAT group.

However, when an external entity wants to make a transaction with one of the members of the VAT group, then the supply of goods and services made to a member of the VAT group by an entity outside this VAT group is considered to have been made for this VAT group.

The situation becomes more complicated when the supply of goods and services is made by a branch that is a member of a VAT group to:

1. the taxpayer who established this branch and who is not established in Poland;
2. another branch located outside Poland belonging to the taxpayer referred to in point 1.

In the above cases, these transactions are considered as transactions made for entities outside the group.

On the other hand, when the supply of goods and services is made to a branch that is a member of a VAT group by:

1. the taxpayer who established this branch and who is not established in Poland;
2. another branch located outside Poland belonging to the taxpayer referred to in point 1,

such transactions are considered to have been made for the VAT group by an entity outside the group.

Is it worth joining a VAT group?

We have already written about the benefits and risks of joining a VAT group on our blog on the occasion of the changes introduced by the legislator as part of the Polish Deal – so we encourage everyone interested in this form of tax settlement to read the article prepared by our Tax Partner, Przemysław POWIERZA.

However, if even this is not enough – or the topic has interested you enough to consider implementing this solution – we strongly encourage you to contact our tax advisors, who will be happy to answer any questions.