Import of Services – VAT Settlement for Foreign Services

More and more Polish businesses are using services provided by foreign contractors. Google and Meta advertising, software licences, software development, marketing, and consulting services provided by companies established in other countries have become part of everyday business operations. In such situations, however, the question arises as to who is responsible for accounting for VAT and when it should be settled.

The VAT treatment of imported services differs from the purchase of services from a Polish supplier. In many cases, the customer is required to calculate and account for VAT, even if the invoice issued by the foreign supplier does not include VAT. It is therefore worth understanding the basic rules to avoid errors in VAT returns and the need for subsequent corrections.

Key Takeaways from This Article

• The import of services means purchasing a service from a foreign supplier where the place of taxation is Poland.
• In most cases, VAT is accounted for by the Polish customer under the reverse charge mechanism.
• The moment when the tax liability arises depends primarily on the performance of the service or the receipt of payment, rather than on the invoice date.
• Imported services must be reported in the appropriate VAT records and in the JPK_V7 file.
• The settlement rules are generally the same regardless of whether the service provider is established within or outside the European Union.

What Does the Import of Services Mean and When Does It Occur?

The import of services occurs when a Polish taxpayer purchases a service from a foreign supplier and the place of taxation is Poland. Therefore, the decisive factor is not the country where the invoice was issued, but the rules determining the place of supply of the service.

For example, a Polish business may purchase an advertising campaign from Meta’s Irish company or a software subscription from a U.S. provider. Although the service provider is located outside Poland, the obligation to account for VAT rests with the Polish customer.

This is why correctly determining the place of supply of the service is so important. Only then can it be established whether the transaction actually constitutes an import of services.

Does Every Service Purchased Abroad Constitute an Import of Services?

No. Simply receiving an invoice from a foreign company does not automatically mean that the transaction constitutes an import of services. First, it is necessary to examine the rules governing the place of taxation for the specific type of service.

Most services supplied between businesses are subject to the general rule. This means that the place of taxation is the country where the customer is established. However, there are exceptions relating, among others, to:

• services connected with real estate,
• transport services,
• admission to events,
• short-term hire of means of transport.

Each case should be analysed individually, as an incorrect determination of the place of supply may result in an incorrect VAT settlement.

Who Is Responsible for Accounting for VAT on Foreign Services?

As a general rule, VAT is accounted for by the Polish customer purchasing the service. The foreign supplier usually issues an invoice without VAT, while the Polish business calculates the VAT due itself.

The VAT treatment of imported services is based on the reverse charge mechanism. This means that the customer reports the output VAT and, if entitled to deduct VAT, may usually report the corresponding input VAT at the same time. As a result, the transaction generally remains VAT-neutral.

For example, a business purchases advertising services worth PLN 5,000 from a company established in Germany. The business calculates Polish VAT at the applicable rate and reports it both as output VAT and as input VAT.

When Does the Tax Liability Arise for Imported Services?

The most important factor is the moment when the service is performed. The invoice date is generally not decisive for determining when VAT must be accounted for.

For imported services, the VAT liability primarily arises when the service is performed. However, if an advance payment has been made before the service is provided, the tax liability arises at the time of that payment with respect to the amount received.

It is advisable to analyse agreements with contractors carefully. In the case of continuous services, such as subscriptions for IT systems or monthly software licences, the tax liability may arise upon the expiry of each settlement period.

Good to Know

Businesses often mistakenly assume that the date of receipt of the invoice determines when VAT must be accounted for. In reality, the decisive factor is primarily the performance of the service or the payment of an advance.

Does the Invoice Date Affect the VAT Settlement?

In most cases, no. An invoice serves as evidence of the transaction, but it does not always determine the moment when VAT becomes due.

The relationship between the tax liability for imported services and the invoice date is one of the questions most frequently asked by businesses. In most situations, the date shown on the invoice alone does not create the tax liability. Much more important are the rules relating to the performance of the service and the receipt of payment.

A simple example illustrates this. The invoice was issued on 28 May, but the service was performed on 3 June. If no advance payment was made earlier, the tax liability arises only in June.

How Should Services Imported from Outside the European Union Be Accounted For?

The rules are very similar to those applicable to services purchased from suppliers established in EU Member States. The main difference concerns the country where the service provider is established.

The import of services from outside the EU includes, among others, the purchase of services from companies established in the United States, the United Kingdom, Canada, Japan, or Australia. If the place of supply is Poland, the customer accounts for VAT under the same rules that apply to services purchased from EU suppliers.

Typical examples include:

• purchasing a software licence from a U.S. company,
• hosting services provided by a supplier established in the United States,
• purchasing marketing tools from a company established in the United Kingdom,
• consulting services provided by a Swiss company.

Where Should the Import of Services Be Reported in the VAT Return?

The settlement of imported services should be reflected both in the VAT sales records and the VAT purchase records. The relevant data is then included in the JPK_V7 file.

The import of services from outside the European Union should be reported in the VAT return in accordance with the applicable rules governing the recording of output VAT and input VAT. If the taxpayer is entitled to a full VAT deduction, the amounts of output VAT and input VAT will generally offset each other.

Although the traditional VAT-7 return has been replaced by the JPK_V7 file, many businesses still use the former terminology.

Are Services Purchased from EU Member States Accounted for Differently?

As a general rule, no. The mechanism remains largely the same.

The intra-Community acquisition of services and VAT are governed by the same rules concerning the place of supply of services. However, this concept should not be confused with the intra-Community acquisition of goods (ICA), which applies exclusively to the movement of goods.

For example, purchasing accounting services from a company established in the Czech Republic or a marketing campaign from an agency based in Spain may also constitute an import of services to be accounted for by the Polish business.

Pro Tip

Before starting cooperation with a foreign contractor, it is advisable to ensure that both parties correctly use their EU VAT numbers. This helps minimise the risk of errors when documenting the transaction.

What Are the Most Common Mistakes Made by Businesses?

Most problems result from incorrectly determining the moment when the tax liability arises and from the improper recording of the transaction in the VAT records.

The most common mistakes include:

• accounting for VAT based on the date the invoice was received,
• failing to report services purchased from suppliers outside the European Union,
• confusing the import of services with the purchase of goods,
• failing to report output VAT in the JPK_V7 file,
• incorrectly determining the place of supply of the service.

The sooner a business verifies the nature of the transaction, the easier it is to avoid subsequent corrections.

Frequently Asked Questions About the Import of Services and VAT Settlement

Does the Import of Services Always Mean That VAT Must Be Paid?

Not always. A Polish business is required to report output VAT; however, if it has the full right to deduct VAT, it may simultaneously deduct the same amount as input VAT. In many cases, the transaction therefore remains VAT-neutral.

Is Purchasing Advertising from Google or Meta Considered an Import of Services?

Yes. In most cases, this is a classic example of the import of services. The Polish business accounts for VAT under the reverse charge mechanism because the place of taxation is Poland.

Does an Invoice Issued in a Foreign Currency Change the VAT Settlement Rules?

No. The amounts should be converted into Polish zloty in accordance with the rules set out in the Polish VAT Act. The mere fact that the invoice is issued in euros or U.S. dollars does not affect the determination of the tax liability.

Is a VAT-Exempt Person Also Required to Account for the Import of Services?

Yes. In certain situations, taxpayers benefiting from a VAT exemption are also required to account for VAT on imported services. Each case should be analysed individually.