Importing services for VAT purposes is one of the most frequently overlooked obligations for small businesses. It doesn't matter what your revenue is or how much you paid for the service. Unlike an invoice for a purchase made in Poland, you are required to record an invoice documenting the import of services. In this article, we'll explain how importing services for VAT purposes works and what practical issues you might encounter.
What is service import?
VAT tax is unique in many respects. One of its special features is the presence of specific mechanisms that only occur when the parties to the transaction are located in two different countries. For the purposes of this article, we can assume that Import of services is a specific type of service transaction in which a service provider provides a service to a customer located in another country covered by the VAT system.
The basis for the import of services is Article 28b of the VAT Act, according to which the place of supply of services is deemed to be the registered office of the service recipient.
Who pays VAT when importing services?
The general principle in VAT is that the tax is to be borne by the final purchaser, while at the stage of trade between entrepreneurs, it is supposed to remain essentially neutral. Based on this assumption, the creators of the VAT directive introduced the so-called reverse charge mechanism. It means that the seller does not have to pay VAT in cross-border transactions - this obligation rests with the buyer.
How to settle VAT on the import of services?
To meet your payment obligations, as a business importing services, you must register for EU VAT. The procedure itself is quite simple – a VAT-R form must be submitted to the head of the relevant tax office. You can also submit this form if you are VAT exempt. Simply check the appropriate checkbox.
After registering for EU VAT, you will also receive an EU Tax Identification Number (NIP), which consists of a standard identification number with the prefix PL. From now on, you should use this new identification number in international transactions. Purchase forms often refer to it as "VAT number," "VAT-ID," or "Tax-ID."
Settlement of import of services by an active VAT payer
If you are an active VAT payer, in simple terms, your tax settlement scheme is very simple:
- you purchase the service (usually at a net price),
- you record the document and at this stage you charge 23% tax,
- at the time of calculation, tax is deducted in the same amount,
- on the JPK_V7 declaration you show equal amounts of input and output tax, so the transaction is tax neutral
Settlement of import of services by VAT-exempt taxpayers
If you benefit from VAT exemption, you must also file a tax return and settle your tax. Unfortunately, the mechanism itself is not as advantageous:
- you purchase the service at a net price provided you have VAT payer status (or at a gross price if you are not in the VAT-EU),
- you record the document and at this stage you charge 23% tax – even if you paid the gross price,
- in the VAT-9M declaration you settle the import and pay the tax,
- because you are exempt from VAT, you do not deduct input tax. If you are on line or general rules, VAT is, however, a cost for you in terms of personal income tax – your income tax advance payment will therefore be lower.
Important: If you are not a VAT payer, you must also register for VAT-EU when importing services from third countries, e.g. the USA, Great Britain, Switzerland, Israel or Turkey.
Tax base for import of services
As a rule, the tax base for imported services is determined according to the same rules as for domestic trade. In practice, therefore, the tax base is everything that the service recipient has to pay to the service provider.
The tax base in the import of services is therefore the total amount due for the provided service, including, among others, taxes and fees of a similar nature, as well as commissions and insurance, if charged by the service provider.
When does tax liability arise when importing services?
Here we also rely on the general principles governing VAT – in the case of import of services, the moment of tax liability is the moment of provision of the serviceHowever, if the service is performed in stages, for example as part of the implementation of a complex computer program composed of many parts, the service is considered completed upon delivery of the individual parts.
How do I calculate VAT when I purchase a service in a foreign currency?
Fortunately, this question is also easy to answer. Pursuant to Article 31a of the VAT Act, the amounts on the import invoice should be converted at the average NBP exchange rate from the previous business day. Interestingly, however, the regulations also allow for conversion of amounts based on exchange rates published by the European Central Bank. For context, in the case of CIT and PIT, only the first method, based on NBP data, is permitted.
What services do Polish entrepreneurs most often import?
As our many years of experience show, Polish entrepreneurs very often import (and at the same time forget to report) services such as:
- Ads on platforms such as Facebook, Instagram, Google Ads, Tiktok Ads,
- Access to tools for graphic designers, photographers and marketers, e.g. Canva, Adobe Photoshop and other products of this company, Shutterstock, Pixabay,
- Domains, hosting, SaaS software, e.g. ChatGPT, Claude, Mailchimp, Hostinger, GoDaddy, Amazon Web Services, Cloudflare
- Consulting, marketing and licensing services.
What data must a foreign invoice contain to be considered an accounting document for a Polish taxpayer?
In our opinion, one of the most common problems Polish entrepreneurs encounter is the varying formats of invoices they receive from foreign contractors. While documents issued by European taxpayers are generally similar to those familiar to Polish businesses, transaction documents from American, Asian, or Israeli service providers can be strange or even incomprehensible to Poles.
As a rule, Foreign invoices do not have to meet the requirements set out in Article 106e of the VAT Act. This doesn't mean, however, that there are no requirements at all. In our opinion, an accounting document from a foreign contractor should include at least:
- Name and identifying details of the seller/service provider,
- Buyer's details, including Tax Identification Number (NIP) if possible
- Document number
- Date of issue and date of service
- Description of the service being sold
- The amount due
- Currency
In practice, the vast majority of large service providers issue documents containing all the above information, even if they are taxpayers from the US and other countries with less stringent tax regulations.
Consequences of failure to disclose the import of services in VAT
Regardless of whether you benefit from the subjective or objective exemption, you are required to disclose the import of services in your tax returns. Failure to comply with this obligation can result in real, severe consequences. Their scale depends on:
- Whether you are an active VAT payer,
- The amount you did not disclose
- The period of time since which you have not disclosed the import of services
Failure to disclose the import of services by a VAT-exempt taxpayer
If you are not an active VAT payer, the consequences of failing to submit a VAT-9M declaration are dire. Because an entrepreneur not registered for VAT-EU must pay tax on imported services but cannot deduct it later, they will incur a tax arrears, roughly equivalent to 23% of the value of undisclosed costs. It's also worth noting that if any irregularities are discovered, they will also be required to pay interest on the outstanding tax. As a result, in extreme cases (inspection shortly before the statute of limitations expires), you will have to pay up to 40% of the net value of the purchased services.
Failure to disclose the import of services by a VAT payer
For VAT taxpayers, the situation is only slightly better. While if an error is discovered during the proceedings, the authority will most likely not impose on you the obligation to settle your tax arrears, you are still vulnerable to sanctions.
Penalties for failure to disclose imported services
Tax authorities from EU member states cooperate to exchange information. Fully aware of the problem, Polish tax offices request documentation from their Irish counterparts regarding transactions with Polish businesses. As a result, a significant portion of abuses and breaches of duty by businesses are exposed and face consequences.
Let's say it straight - If the failure to disclose the import is due to ignorance, occurs on a small scale, and the circumstances do not suggest an intention to commit a prohibited act, the risk of imposing criminal and fiscal sanctions is small, although it should never be underestimated. Failure to disclose the import of services meets the criteria for an act under Article 61 § 1 of the Penal Code, and therefore, the perpetrator, even if acting unintentionally, is liable to a fine of up to 240 daily rates.
I forgot to post my Facebook ad invoices. What should I do?
Above all, proceed with calm. Even if you learned about the fact from the tax authorities during an investigation, the situation may not be that bad.
If you have discovered the deficiencies in your accounting yourself, the situation is simple – in cooperation with recommended accountant you must enter the missing documents into the revenue and expense ledger and, if necessary, also correct the annual settlement. Remember – taxes expire only after a few years, so if you have been buying ads on Instagram or Facebook for several years and have not recorded these costs, you need to be prepared for a lot of work.
However, if the tax authority contacts you, you will usually be asked to prepare explanations, most likely also to submit accounting documents. The deadline depends on the official's decision – it will usually be 7 or 14 days, although in more complex cases, you can request an extension. This is a good time not only to prepare the invoices or revenue and expense ledgers requested by the authority, but also to contact the tax authority. tax advisor from Warsaw.
Subsequently, depending on the situation, the tax authority may request that you submit a correction to your JPK_VAT return or an overdue VAT-9M form. However, if your tax arrears are significant, you have previously been requested to correct your tax returns, or you fail to cooperate with the authority, the verification process may escalate into an audit or tax proceedings, which increases the risk of serious sanctions and significantly complicates the matter. The bottom line? Don't let the tax office get in your way and use the services of a tax advisor, but cooperate with the tax office. This strategy is usually more profitable.
Summary
We hope our post was helpful – importing services under VAT is one of the biggest accounting challenges faced by beginner entrepreneurs. However, if you feel you'd like to entrust this matter to specialists, contact us – we have many years of experience in this field.
