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Entrepreneurs seem widely to believe that every company, including a limited liability company, must be an active VAT taxpayer. However, equating a legal form with VAT liability and mandatory registration is a mistake. It may stem from unfamiliarity with the VAT Act, particularly exemptions, but also from business practice, where companies quite often choose active VAT status. We therefore present the key facts and myths about VAT in limited liability companies.
A company must be VAT-registered? A myth! VAT exemptions are also available to limited liability companies
The VAT Act governing various Polish businesses does not distinguish VAT liability by legal form.
Exemption provisions make no such distinction either.
This follows directly from the general provisions and the exemption rules:
- Article 43(1), concerning exemptions for particular supplies;
- Article 113(1), specifying the turnover-based exemption limit.
Thus not only sole proprietors but also companies, including limited liability companies, can qualify for VAT exemptions.
Supply-based and turnover-based VAT exemptions for a limited liability company
Article 43, listing activities eligible for supply-based exemption, does not categorically exclude any business legal forms.
Therefore, any limited liability company undertaking, among other things, the following can use a supply-based exemption:
- supplies of prepared meals;
- supplies of postage stamps;
- supplies of human organs, blood, plasma or breast milk;
- transactions involving currencies, coins and banknotes, excluding collectors’ items;
- supplies of gold to the National Bank of Poland;
- supplies of undeveloped land other than building land;
- management services for investment funds, alternative investment funds or collective securities portfolios;
- gambling activities;
- medical care services;
- medical transport services;
- social assistance services;
- care for disabled or chronically ill people, children or young people;
- compulsory social insurance services;
- foreign language teaching;
- vocational education services;
- accommodation in boarding facilities and student dormitories;
- selected cultural and sports-related services.
Article 113(1), describing turnover-based exemption, likewise contains no exclusion for limited liability companies.
Thus any such company whose revenue did not exceed PLN 240,000 in the previous or current tax year may be exempt.
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When must a company be VAT-registered? Mandatory registration for some limited liability companies: legal services, advisory services, exceeding the limit
There are, however, situations in which a limited liability company, like any other business, must become an active VAT taxpayer.
These are listed in Article 113(13), particularly:
- legal services;
- advisory services, except agricultural advice;
- jewellery services;
- debt collection services;
- trading specified goods, such as antiques, precious metal products, car and motorcycle parts, building land or new means of transport.
Also, VAT registration is required upon exceeding the revenue limit described above, PLN 240,000 annually from this year.
If this article interested you, explore our tax advisory services and read how we can help you:
Summary
Must a limited liability company be VAT-registered? Facts and myths about VAT in a limited liability company
Like any lawful Polish business, a limited liability company can use VAT exemptions provided by the VAT Act.
The act does not distinguish VAT liability or exemption eligibility according to business legal form.
Nevertheless, both VAT registration and exemptions, whether turnover-based or supply-based, have advantages and disadvantages. Before deciding, we recommend “Is VAT registration worthwhile? When does registration pay off, and when is exemption better?”, where we described the most important pros and cons.
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