Reduction VAT from unpaid invoices

We would like to draw your attention to the possibility of taking advantage of the so-called "bad debt relief" in VAT, also in situations in which, according to Polish law it was previously not possible.

Until now, the taxpayer could recover the VAT paid to the tax office only if the debt resulting from the invoice was not paid within 90 days (previously 150 days) from the due date.

However, the bad debt relief (possibility to reduce VAT on unpaid invoices) was not available in case where the debtor was undergoing bankruptcy or liquidation proceedings or was no longer registered as a VAT taxpayer. Therefore, it was not possible to apply the reduction of VAT also to consumers (natural persons not conducting business activity - B2C) or taxpayers exempt from VAT.

On October 15, 2020 CJEU issued a judgment in a Polish case stating that Polish regulations making the VAT reduction subject to the above mentioned conditions are contrary to EU law, i.e. Directive 112.

The above means that the issue of bankruptcy, liquidation or VAT status of a contractor/debtor is irrelevant for the purpose of VAT reduction on outstanding invoices.

The bad debt relief can thus be extended to invoices issued after December of 2015 (and not only for the last 2 years) and so far unpaid.

If you are interested in the above matter, please contact our Tax Advisory Department.