Why do so many Polish entrepreneurs provide their services to clients from other EU countries? Border-free policy, universal access to the Internet, and free communication with contractors from the farthest corners of Europe are the answer to this question. However, this accessibility comes with additional obligations, an example being VAT. The law regulates both the invoicing processes and the details it must include, and the application of reverse charge when certain conditions are met.
What is import of services from EU countries?
Businesses working with customers abroad are required to include a reverse charge clause on the invoice. The reverse charge mechanism is nothing more than the transfer of VAT liability from the seller to the buyer. This means that the buyer, who is an active VAT taxpayer, charges tax on such transactions. This may later be deducted, as the customer receives an invoice documenting the import of services from the European Union.
According to Article 2(9) of the VAT Act, import of services is defined as a transaction where:
- the buyer is a natural person engaged in business activity or a legal person who has a registered office or a permanent place of business in Poland,
- the taxpayer has a registered office or permanent place of business in Poland and purchases services from a taxpayer whose registered office or permanent place of business is located outside Poland,
- the services are supplied in the country where the buyer’s registered office is located (Article 28b. of the VAT Act),
- the service is not subject to separate regulations that would indicate tax obligations in the supplier’s country.
When does tax liability arise on import of services? At the time the service is performed. This means that the purchase of services from a taxpayer from another member state constitutes obligation to report import of services on the invoice received, and charging VAT in Poland, at the rate established for the service.
Note that an invoice with a reverse charge annotation must be shown in the JPK_V7 file (on the output and input tax side) in the same accounting period in which the tax liability for importing services from the EU arose. The invoice must include the VAT number of the issuing taxpayer (with “PL” prefix), as well as the tax identification number of the buyer (with their corresponding country prefix).
The EU VAT directive and reverse charge
The VAT Directive applies to all member states – each of them is obliged to implement its provisions. The European legal act in many places leaves freedom for national legislators to choose certain VAT solutions, but all EU countries are obliged to apply the same rules on fundamental matters. Accordingly, countries such as Belgium, France, and Italy have introduced reverse charge for goods and services. By contrast, in Germany, Austria, Denmark, Hungary and Lithuania, the taxpayer for domestic supplies is the seller, who should register for VAT in the country and issue an appropriate invoice.
