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Obligatory Split Payment coming as of 1st of November

Instrument to fight tax evasion.

The Act from August 9, 2019 amending the Act on Value Added Tax and  Other Acts (hereinafter referred to as the „Amendment Act”) brought a number of novelties. One of them is the introduction of the obligatory split payment mechanism entering as of November 1, 2019. The basis for its introduction is Council Implementing Decision (EU) 2019/310 of 18 February authorizing Poland to introduce a special measure stemming from Article 226 of Directive 2006/112 / EC of 28 November 2006 on the common system for value added tax (Official Journal EU L 51/19). This specific measure applicable to the supply of goods and services susceptible to fraud is aiming to bring tangible results in the combat against VAT fraud. Poland has obtained the consent to introduce a mandatory split payment mechanism for a specified period, i.e. from March 1, 2019 to February 28, 2022. This means that the Polish legislator could have introduced obligatory split payment from March 1, 2019, yet this date has been extended and the mechanism will be introduced into law from November 1, 2019.

Split payment is a system according to which:

the payment of the amount corresponding to the entire VAT amount resulting from the received invoice is made to the designated VAT account;
the payment of all or part of the amount corresponding to the net sales value resulting from the received invoice is made to the bank account or to the account with savings-and-loans-association for which a VAT account is kept, or is settled in a different way.

Which transactions are covered?

The split payment mechanism has been in operation since July 1st, 2018 as a voluntary system where the buyer decides whether an invoice will be paid using this method. The implemented obligatory system does not allow to use the split payment mechanism selectively, effectively leaving the decision to the buyer, but rather precisely indicates in which cases it must be applied.

The new regulation covers solely:

transactions between business entities (B2B basis),
goods and services listed in the new Annex 15 to the VAT Act (currently being subject to the domestic reverse charge or joint and several liability),
invoices with value equal to or exceeding gross 15,000 PLN (ca. 3500 EUR).

A seller, who issues an invoice with a value equal to or exceeding 15 thousand PLN gross, which includes at least one product /service from Annex 15 to the VAT Act, will be required to enclose on the invoice the information "split payment mechanism".

The above change eliminates the domestic reverse charge mechanism in relation to goods and services from areas particularly exposed to VAT fraud. These areas are sectors of the economy such as steel, scrap, electronic equipment, gold, non-ferrous metals, fuels and plastics.

The new Annex 15 to the VAT Act contains not only the goods and services from Annexes 11, 13 and 14, which will be repealed after the change, but has also been expanded, with groups such as:

car parts and accessories,
coal and coal products,
electrical machinery and equipment, etc.

In other cases, i.e. deliveries and services outside the scope of Annex 15 to the VAT Act, applying the split payment mechanism will remain optional.

Transitional period

The domestic reverse charge will not disappear completely on November 1st, 2019. The legislator introduced transitional provisions indicating proper settlement of transactions  during legal status changes. Art. 10 of the VAT Act elaborates on this issue. Services or supplies (covered by Annex 11 or 14 to the VAT Act (in the version applicable until the end of October) performed before this date, documented with the invoice issued in November, will be still issued using the reverse charge mechanism. In this case, there will also be no obligation to put on the invoice the compulsory information about the obligatory split payment mechanism and this invoice is payable in this form. Failing to include this information in case it is required, may result in the imposition of sanctions on both the seller and the buyer. Similarly, if contrariwise – the invoice was issued before November 1st,2019, while the delivery or service will be carried out after that date – the transaction will be the subject to the reverse charge mechanism.

It is crucial the invoice is issued correctly, especially for the buyer. If he receives the invoice with the amount of VAT, which should be the subject to the reverse charge regime, he will have no right to deduct input VAT from such invoice.


Both sellers and buyers will be imposed with sanctions for failure to comply with the obligations required by the obligatory split payment regulations system.

If the buyer pays the VAT amount from the invoice, despite the obligation, without the split payment mechanism, the one will be penalized with 30% of the VAT due from the invoice in regard to the delivery of goods or services listed in Annex 15 to the VAT Act. Therefore, if the invoice contains at least one item from Annex 15 to the VAT Act and the total invoice value is equal to or exceeds 15,000. PLN, then in relation to this item the payment should be made with the split payment mechanism.

It is irrelevant whether the seller stated on the invoice "split payment mechanism" or forgot to put it there. It is the purchaser's responsibility to recognize the VAT liability properly. If above mentioned information is missing, the sanction could be disabled if the entire amount of the VAT due from the invoice is settled by the seller.

The seller issuing the document without the annotation "split payment mechanism" will be also exposed to a penalty of 30% of the VAT due from the invoice for the delivery of goods or services listed in Annex 15 to the VAT Act.

However, it will be possible to exclude sanctions if the entire amount of VAT on the supply or provision of services listed in Annex 15 to the VAT Act is settled with the split payment mechanism.

This sanction, in the case of sellers and buyers, will not be applied to natural persons who are the subject to provisions of the Penal Fiscal Code for the same act.

It is worth mentioning the delivery of goods from Annex 15 to the VAT Act will be covered with joint and several liability. The release from it may occur only if invoices with the amount less than 15,000. PLN gross, which are not the subject to the obligatory split payment, will be paid with this method.

Obligation to have VAT account in Poland

The introduced changes are obliging the seller to include on the invoice a statement indicating that the transaction uses the split payment mechanism but also to allow the buyer to pay in this mechanism. We draw attention to the fact that the lack of marking on the invoice does not release the buyer from the obligation to pay with the split payment mechanism.

As „a special measure” - the split payment mechanism applies to all suppliers / service providers, including those which are not based in Poland. They must have the bank account maintained in accordance with Polish Banking Law.

So far, in voluntary split payment, we have encountered attempts to disable this mechanism, e.g. by way of contractual provisions or introducing other solutions, for example by indicating saving and settlement accounts to which VAT accounts are not opened in accordance with the provisions of the Banking Law. Article 108a (1b) of the VAT Act faces this problem and put the requirement on taxpayers who issue invoices marked with compulsory split payment mechanism, to accept payments made in the split payment mechanism. Therefore, it forces sellers and buyers selling or buying goods or services listed in Annex 15 to the Act on tax on goods and services to pay for transactions equal to or exceeding PLN 15,000 gross using a regular bank account along with the VAT bank account.

Transfers made using the split payment mechanism can be made only for payments in PLN. In the case of invoices issued in other currency, the net amount can be paid, e.g. in EUR, while the VAT amount itself must be transferred to the VAT account in PLN.

Bulk Transfers - are we able to make them correctly?

Until now there was a rule in the regard of paying invoices in the voluntary split payment system, according to which each invoice paid in split payment had to be paid with a separate transfer. However, in order to meet the needs of entrepreneurs, the Legislator decided to introduce the possibility of making a single payment transfer for more than one invoice (Article 108a (3a-3b) of the VAT Act). Contrary to the present the taxpayer will not indicate the number of specific invoice, but the period for which he makes the payment. The period cannot be shorter than one day and longer than one month.

However, it is important that in this case the transfer message will have to include all invoices received by the taxpayer in given period from one supplier and therefore, include the entire amount of VAT resulting therefrom. Thus, the taxpayer making the bulk transfer will have to be sure he includes all invoices, also those which are not covered by the obligatory split payment. It seems that most taxpayers, especially large entities, may have a problem with this. The question is what if it turns out that the taxpayer omitted some transactions? The new regulations, despite their intention of simplification, may rise with even more obligations and dilemmas to some extent.

The split payment introduced by the legislator is mainly a tool designed to fight against economic crime and tax fraud, but for the average entrepreneur it is the spectrum of another obstacle in conducting business. It requires the implementation of certain tools, appropriate preparation and IT adjustment of the accounting system, as well as training of its own staff.

Ewelina Depo

VAT Consultant

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