VAT 2025: SME Directive and its impact on large businesses

How does the SME directive change settlements with contractors?

The Act implementing the so-called SME Directive has been signed by the President of Poland and published in the Journal of Laws. Currently, a secondary regulation and amendments to the VAT-R form are under consideration. The Directive 2020/285 introduces changes that primarily benefit small and medium-sized enterprises (SMEs) based in the EU. These changes allow SMEs to benefit from the VAT exemption scheme in other EU countries, subject to an EU-wide annual threshold of EUR 100,000 and specific thresholds set by individual EU countries.

As a result, companies based in other EU countries, including those with a fixed establishment in Poland, currently registered for VAT in Poland, will be able to opt into the SME procedure through the tax authority in their home country starting in 2025. The Ministry of Finance estimates that approximately 6,000 companies currently registered for VAT in Poland and paying VAT here could take advantage of this option by 2025.
Using this procedure and deregistration in Poland (which will occur automatically once eligibility for the SME exemption in Poland is confirmed) will alter the way such businesses settle with their Polish contractors.

Key changes in invoicing practices

Taxpayers using the SME scheme in Poland will issue invoices only upon request, and these invoices will not include VAT. This means Polish recipients of such invoices must prepare for changes in how they process purchase invoices previously issued by taxpayers registered as “active VAT taxpayers” with VAT shown, to invoices without VAT. Such invoices should include the individual identification number (with the EX code) and a reference to the legal basis (Article 113a of the Polish VAT Act), indicating that the change in settlement arises from the EU contractor’s use of the SME scheme in Poland.

However, especially at the start of the new regulations, attention should be paid to potential changes in the invoicing practices of EU contractors delivering goods and services locally to Polish businesses.

Impact on Intra-Community Acquisitions (ICA)

Entering the SME procedure also impacts the obligation and scope of declaring ICA in Poland. Taxpayers benefiting from the SME exemption do not declare IC supplies in their home country. Consequently, the Polish purchaser may not declare ICA in Poland.

The European Commission’s Explanatory Notes on SME highlight that the responsibility lies with the business client, who must verify the SME status of a VAT taxpayer via the SME-on-the-Web application. Therefore, Polish contractors, especially in new business relationships, must verify whether they should declare ICA in Poland for goods purchased from the EU. The SME-on-the-Web portal is expected to assist in this verification, hopefully confirming whether a company is eligible for the SME exemption in a specific EU country.

Invoices issued by EU contractors documenting intra-community supplies to Poland may not always contain decisive information and could even mislead Polish recipients. In many EU countries, IC supplies are not documented with a 0% VAT rate but rather with an exemption from VAT. While SME invoices for intra-community supplies to Poland should include appropriate annotations, this may not always happen, making verification via the EU portal essential.

In cases of erroneous (excessive) ICA declarations, taxpayers should adjust their settlements. However, tax authorities should not insist on retaining the VAT due while only correcting the deductible VAT.

Changes in the supply of services for Polish companies

A similar situation may arise for the import of services taxed in Poland. If a service provider from another EU country does not apply for the SME exemption in Poland, the Polish recipient will declare the import of services. However, if the EU service provider is covered by the SME procedure in Poland, the Polish contractor should not declare the import of services in Poland. As with goods transactions, the European Commission highlights the verification obligations of the service recipient.

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Learn about the changes introduced by the SME Directive 2025 in VAT and their impact on small and large businesses in Poland. Familiarise yourself with key information on exemptions and new obligations.
Want to prepare your business for VAT 2025 changes? Contact our VAT expert today.