Justyna Pomorska-Porębska

Tax adviser (Poland)
Senior Associate
Phone: +48 22 244 00 18

Because of the major overhaul of the VAT Act, 2014 has been dubbed "the year of VAT revolution". 1 January 2014 saw an amendment of such key VAT aspects as the tax point, taxable base, deductibility, and invoicing rules. The name of "the year of VAT revolution" is well deserved as the taxpayers are facing yet another amendment. 1 April 2014 will see new rules of deductibility of input VAT on transactions involving motor vehicles. In the following text we are outlining the more important changes in this area.

VAT deductible amount to depend on what the vehicle is used for

The rules of VAT deductibility on motor vehicles with permissible maximum weight not exceeding 3.5 tonnes will change on 1 April 2014. The deductible amount will depend on what a taxpayer uses the vehicle for. If a car is used for mixed purposes, that is, for both business and private purposes, the right to deduct will be limited. On the other hand, if a taxpayer uses a car exclusively for own business purposes, he will be entitled to deduct the full VAT amount. 

The full deduction will apply to, among other things, special vehicles that are designed to carry minimum 10 people. 

Limited deductibility – not only VAT on purchase

If a motor vehicle with the permissible maximum weight not exceeding 3.5 tonnes is used for both business and private purposes, the taxpayer will be entitled to deduct 50% of VAT. This applies not only to VAT on purchase, ICA or import of vehicles (as it used to be), but also to VAT on repair, operation and purchase of component parts. The 50% limit is not capped by any amount. Consequently, the taxpayer will be entitled to deduct 50% of VAT regardless of the VAT amount shown in the invoice. 

The 50% limit will also apply to vehicles used under lease, rental or similar agreements. 

Unlimited deductibility – recording obligations

The taxpayer will be entitled to deduct 100% of VAT provided that the vehicle is used exclusively for the taxpayer's business activity purposes. Furthermore, the following conditions must be met: 

  • the taxpayer must establish the rules of using the vehicles saying that they may be used exclusively for the taxpayer's business purposes; 
  • a vehicle mileage logbook must be kept for the vehicles used exclusively for the taxpayer's business purposes. 

The vehicle mileage logbook should include, without limitation: vehicle registration number, logbook's start and end date, odometer count, number of kilometres driven. It should be kept starting from the date when a vehicle is used exclusively for the taxpayer's business activity.

Information filing deadlines

Taxpayers who are going to use cars exclusively for business purposes, for which a logbook will be kept, will be obliged to notify the head of competent tax office of the vehicles used exclusively for business purposes (VAT-26 form). 

The VAT-26 information should be filed within statutory deadlines. The taxpayer will be obliged to file: 

  • the information within 7 days of the date when the first expense is incurred; The regulations do not provide for a definition of the very first expense. In the case of purchase of a new vehicle, we suggest that for prudential purposes you consider the very first expense be the payment of an advance regardless of issuing the invoice. 
  • the updated information, at the latest before the day on which the taxpayer changes the purpose of the vehicle (from mixed use to exclusively business use);
  • the information within 7 days after the date of the first expense, since the effective date of the new regulations with respect to the vehicles purchased before 1 April 2014 used exclusively for business activities.

If the taxpayer fails to file the above-mentioned information on time, his vehicle will be considered used exclusively for business purposes only after the day the information is filed.

Liability for breach of the information obligation

A taxpayer who fails to file the VAT-26 information on time or who provides false information, and deducts 100% of VAT at the same time, is subject to penal and fiscal liability (fine of up to 720 so-called daily rates, where such daily rates range from PLN 56.00 to as much as PLN 22,400.00). 

Fuel – no deduction until 30 June 2015

VAT on purchase of fuel for, among other things, passenger cars, cannot be deducted until 30 June 2015. This limitation does not apply to vehicles used exclusively for business activity purposes. 

Car lease – contract made before 1 April 2014

The 50% deduction limit does not apply to lease instalments, rent etc. for vehicles used under a lease, rental or similar agreements made before 1 April 2014, on which the entire VAT
 amount invoiced is deductible as of 31 March 2014.

This rule will apply to the agreements in question:

  1. without consideration of the contractual changes made as from 1 April 2014; and
  2. on condition that:
  • the vehicles used on the basis of those agreements were delivered to the taxpayer before 1 April 2014;
the taxpayer who makes the deduction registered the agreement 
with the head of the competent tax office at the latest by 1 May 2014.

We would be glad to share more information on this subject with you and provide comprehensive CIT, PIT, VAT advisory in Poland. Our tax advisers working in Rödl & Partner offices in Gdansk, Gliwice, Cracow, Poznan, Warsaw and Wroclaw will also answer other tax-related questions that you may have.