New rules for VAT deduction

Poland: From 1 April 2014 new rules enter into force for deduction of VAT on purchase of a motor vehicle.

 Early 2014 brought many changes in tax law, including tax on goods and services (VAT). Until 31 December 2013 the law allowed businesses to deduct 60% VAT when buying a car but only to a limit of 1 500 EUR. As from 1 January 2014 the limit is removed (i.e. it is possible to deduct 100% VAT) on buying cars with an HGV licence (so-called “cars with bars”). From April 2014 the rules will change again. Such frequent changes in such a short time can be confusing and at least they will have an impact on the purchase decision. So here below we show you what to expect from 1 April 2014.

In February the Parliament passed a law amending the Act on Tax on Goods and Services and certain other acts, which will come into force on 1 April 2014. The Act introduces a completely new procedure for deducting VAT from purchase – also leasing or renting – of a motor vehicle weighing below 3.5 tonnes.

Businesses will be able to choose from two options for deducting VAT: under the first model a business will be able to deduct 50 % VAT on a car used both for business and private purposes, regardless of the proportions of this division. Under the second model a business will be able to deduct 100% VAT but only on a car for which expenses incurred are strictly business-related. However, this second possibility involves a requirement to keep detailed records of vehicle mileage and to supply this information to the tax office. Providing false or misleading information to the tax office can attract a fine of up to 4 000 000 EUR.

However, the legislator has included certain categories of vehicles for which detailed record keeping is not necessary because of the assumption that they are used only for business purposes – that is e.g. cars with one row of seats separated from the loading zone by a partition, cars designed and constructed for carrying at least 10 people, multitask cars or vans, vehicles whose design generally precludes their use for purposes outside business activities such as excavators, loaders, lifts, and so on.

This legal position will last for at least two years.

Source: Act of 7 February 2014 amending the Act on Tax on Goods and Services and certain other acts, in force as of 1 April 2014

Author: Katarzyna Zawada, bnt attorneys-at-law Warsaw

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