Draft SME adopted by the Council of Ministers

Aim of the SME package: simplify cross-border VAT settlements

Currently, traders doing business in different European Union (EU) countries where they are not established must, in many cases, register for VAT. This requirement involves filing VAT returns in each EU country where VAT is due. This process is particularly burdensome for small and medium-sized enterprises (SMEs), which incur proportionally higher VAT compliance costs than large companies due to their fewer resources.

SMEs account for as much as 99% of all businesses in the EU, making them a key part of the European economy. To make things easier for SMEs, Directive 2020/285 introduces the possibility for small businesses established in EU countries other than those where VAT is due to also be exempt from VAT. These changes aim to reduce costs and simplify VAT formalities, which will encourage businesses to trade more actively within the EU single market.

An example of the application of the new rules

For example, a Polish construction company providing real estate services in Germany to a German client who is not a VAT payer, has until now had to register for VAT in Germany from the first sale. Following the changes from 1 January 2025, this obligation will be abolished up to a certain threshold. .

SME limits for VAT exemption

1. National limit: PLN 200,000

Taxpayers with a place of business in Poland will still be able to benefit from the domestic exemption if their sales in the previous year did not exceed PLN 200,000. Importantly, taxpayers established in an EU country other than Poland will also benefit from this preference from 1 January 2025.

1. EU limit: EUR 100,000

Entrepreneurs with a registered office of a business in an EU country may benefit from the exemption in another Member State, provided they have not exceeded an annual turnover of EUR 100,000 within the Union and have met the limits set by the country in question.

Impact of the SME package on large companies

The widening of the subjective scope of the VAT exemption may cause SMEs to opt for the exemption, which will affect the deductibility of VAT for their business customers. Large companies may have to adjust their accounting systems to take into account invoices from VAT-exempt SMEs. These changes may affect around 6,000 foreign companies operating in Poland, which have so far been unable to take advantage of the VAT exemption in Poland.

Status of the implementation of the SME package in Poland

The draft law implementing the changes (No. UC56) has just been adopted by the Council of Ministers and will soon be referred to the Sejm. The implementation of the changes appears to be unthreatened and it is anticipated that the new provisions will enter into force as planned.