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Many people consider that subjective exemption from VAT tax is better than being vat tax payer. However despite common conviction sometimes it is better to make registration and account VAT tax.
Subjective exemption resulting from article 113 VAT Act, commonly know as exemption due to turnover (limit 200 000) . It is voluntary, it means the subject alone makes choice if he wants use subjective exemption or wants to register as active tax payer. What is important, it is possible to resign in any moment from subjective exemption.
Moreover if we are active tax payer , with fulfilling described in act conditions , it is possible to use from subjective exemption.
Evaluating which options is more profitable for us, particulary it should take into consideration , if hypothetically being the VAT tax payer , we will have surplus input tax over output tax – so colled the return of VAT tax, and take into consideration , who our clients will be. Moreover it is worth to consider if we will account intra-Community acquisition of goods or importation of services.
In simply words, the excess of input tax over output tax will occur when the amount of tax paid by us on purchases is higher than the amount of tax added by us on the sale. Therefore, when making estimates, we must take into account how much and what purchases we will make, and exactly how much VAT we will pay when we will make purchase. We should remember, that made by us purchase can be taxed with tax rate lower than 23 %, which will result in lower tax rate , or it can be covered with tax exemption, which means that there will be not tax at all. Simultaneously making the esimates we must must define how we will tax the sells made by us. Above all we must check if despite resignation form the subjective exemption (so-called due to the limit of PLN 200,000) made by us services or deliveries of cargo are not covered with subjective exemption In case when made by us services or cargo deliveries are covered with subjective expemption, it is not justified to waive the exemption resulting from not exceeding the limit. Regardless of the exemption that applies, we do not have the right to recover the VAT paid on the purchases made.In situation, when made by us services or deliveries of goods are taxed with the right tax rate, it can be rate 0%, 5%, 8% or basic rate 23%. The lower is VAT rate we must use, the lower will be quote of output tax. In consequence the probability of getting the excess of input tax over output tax is bigger. Moreover, our sales can be taxed on the rule reverse charge with a view to determining the place of supply of the service or the place of delivery of goods outside the territory of Poland. In this situation when we sell the service or goods without VAT tax, but we have the right to deduction of tax paid as part of purchases made (provided that the conditions resulting from Article 86(8)(1) of the VAT Act are met).Then there is no tax due, but we can recover the entire amount of tax paid by us on purchases, which is very beneficial for us.
Regarding to the question , it should indicate, that being the tax payer with subjective exemption the price netto is the price brutto and there is no VAT tax.
When we decide to being the active vat payer , the client pay price brutto including the VAT quote, so in reality he carries the VAT tax cost. In consequence , in both cases , realistically we receive the same salary equal to he price netto. In case we are the active vat tax payer, the client pays more, because he pays in addition VAT tax quote. However, it should be noted that our customer who is a taxpayer is entitled to deduct VAT will recover the VAT paid in the price of our service or our goods. We should take into consideration that our client who is tax payer who has right to to deduct VAT which will recover the VAT paid in the price of our service or our goods .Thus, it can be said that even if we do not use the exemption, the customer who is a taxpayer will ultimately bear the net price for our service or purchased goods, because VAT will be deducted. Consequently, as a rule, it makes no difference to such a client whether we use the exemption or not. The situation is different when our clients are natural persons or entities that do not have the right to deduct input tax. Such customers will not recover the VAT paid in the price in any way. Therefore, when we do not use the exemption, but we are an active taxpayer, for such customers the price is actually higher, because they have to pay the net price plus the amount of VAT.In the case of intra-Community acquisition of goods and import of services, the fact of using the subjective exemption determines the right to deduct the tax that we must pay as the purchaser. Despite the use of the subjective exemption, when recognizing the intra-Community acquisition of goods or the import of services, we calculate and pay the VAT due (except in cases of application of the subject exemption). At the same time, we do not have the right to deduct this tax. However, being an active VAT taxpayer, as a rule, we have the right to deduct tax, and thus we actually pay the net price for the purchased goods or services.Therefore, to put it simply, it is worth registering as an active VAT taxpayer when:
- we make a lot of purchases (we have a large amount of input VAT)
- we make sales taxed on the basis of the so-called reverse charge or reduced VAT rate (we have a small amount of VAT due)
- we recognize a lot of intra-Community acquisitions of goods or imports of services (we have a large amount of VAT due on intra-Community acquisition of goods or import of services)
- our clients are entities (persons) entitled to deduct VAT.
Financial Tax Office