Taxes in services export: what you need to know
Exporting services to European Union contractors does not have to end in a pile of revisions at the tax office. Let's get down to business – how to issue invoices so you don't pay the same tax twice.
Key principle: where the service is performed
Most entrepreneurs we work with at Development Consulate fall into the same trap. They think the place of service is always Poland because that is where they sit with their laptops. Unfortunately, in VAT, it is completely different. If you sell a service to a company (B2B), the place of taxation is usually your client's country. This means that a Polish rate of 23% should not appear on the invoice, but rather a note about reverse charge.
In our last 7 tax advisory cases, 4 concerned incorrect VAT calculation on invoices for German contractors. Entrepreneurs added 23% VAT, making their offer more expensive, and the client had to wait for a correction. It is a waste of time and unnecessary accounting confusion, which can be avoided by simply knowing the VAT Act provisions.
If you sell a service to a company (B2B), the place of taxation is usually your client's country.
Verifying the contractor in the VIES system
Before sending an invoice without VAT, you must ensure your client is an active EU VAT taxpayer. It is not enough to check the VAT number on a business card or email signature. You must visit the VIES system website and download the registration confirmation. It takes about 2 minutes and protects you from having to pay tax out of your own pocket if the VAT number turns out to be inactive.
We recently helped an IT sector client who failed to verify their contractor in the system for 5 months. It turned out that after 3 months, the client's company suspended its EU activity. The office questioned invoices for 47,000 PLN. We had to file explanations and corrections. This is a painful lesson – always print the confirmation from VIES and keep it in a binder next to the invoice.
Invoices and NP rates - how to mark them
On the invoice in the 'VAT Rate' field, enter 'NP' (Not Subject). Additionally, you must add the annotation: 'reverse charge'. This is clear information for a foreign accountant that they are obligated to settle VAT in their country. If you don't add this, the tax office may consider that you have not fulfilled your formalities.
At Development Consulate, we often fix ready-made invoice templates that default to a 23% rate in Polish accounting programs. Remember not to click 'next' mindlessly. We secure your next step by checking if your software actually supports the service export mode. One small setting change will save you a visit to our office in half a year.
One small setting change will save you a visit to us in half a year.
When must you register for EU VAT
Many micro-entrepreneurs use the VAT exemption in Poland. Does this mean you are also exempt when exporting services? Yes and no. If you provide services to companies from the Union, even using the subjective exemption in the country, you must file a VAT-R form and register as an EU VAT taxpayer. This does not automatically make you a VAT payer for all domestic sales, but allows you to legally issue foreign invoices without tax.
This is a frequent point of contention. We have already seen 3 cases where entrepreneurs acted 'by feeling'. The tax office registered it as tax arrears. The EU VAT procedure is just one additional document sent to your office. We tell it like it is – it is better to spend an hour on paperwork now than to explain the situation during a tax audit next year.
