Bad debts relief in VAT

Despite “Anti-Crisis Shield” due to COVID-19, it is worth remembering about the permanent solution in the Polish VAT Act that allows reducing or deferring the VAT liability, so-called “bad debts relief“.

The requirements to correct the sales VAT related to the bad debts relief are as follows:

• The taxpayer may correct the tax base and the output tax related to the supply of goods or services within the territory of the country in the event of uncollectibility plausible of the debt. The correction shall also apply to the tax base and the amount of output tax corresponding to the part of the amount of receivable debt that has become unrecoverable.

• Uncollectibility of a receivable debt shall be deemed plausible in the case when the receivable debt has not been paid or transferred in any form within 90 days from the date of its payment specified in the contract or invoice.

!!! Before 1 January 2019, for the uncollectible receivables, a 150-day time limit applied.

• The above provisions shall apply if the following conditions are met:

• the supply of goods or services has been performed to a registered active VAT taxpayer who is not undergoing restructuring, bankruptcy or liquidation proceedings;
• on the day preceding the day of submission of the VAT return, in which the correction for the bad debts relief is made
  • the creditor and debtor are registered as active VAT taxpayers,
  • the debtor is not undergoing restructuring, bankruptcy or liquidation proceedings;
• 2 years have not elapsed since the date of issuing the invoice documenting the receivable debts, counting from the end of the year in which it was issued.

• The correction for the relief for bad debts may take place in the settlement for the period in which the debt is considered unrecoverable, provided that by the date of submission by the creditor of the VAT return for that period a receivable debt has not been settled or disposed of in any form.

• If, after submitting the VAT return in which the correction was made, due to the relief for bad debts, the receivable has been settled or disposed of in any form, the creditor is obliged to increase the tax base and the amount of output tax in the settlement for the period in which the receivable was paid of disposed. In the event of a partial settlement of the amount due, the tax base and the amount of output tax increases in relation to this part.

• The creditor is obliged together with the VAT return in which he makes the above correction, notify the proper head of the tax office, together with the amount of the correction and the debtor’s details.

If you have unpaid invoices for which are met the above conditions that could be considered as the uncollectible receivables, you can apply for relief.