Place of supply of services – general rules

How to determine the place of supply of a service?

The range of activities subject to VAT includes not only the sale of goods in exchange for consideration but also the  supply of services in exchange for consideration within the country.

While  supplying services between Polish taxpayers usually does not pose many issues, expanding the scope of services for clients from other countries may present challenges in how to approach such transactions in terms of VAT.

The provisions of the VAT Act help determine in which country the service we  supply is subject to taxation. Interestingly, the choice is not always the location where the service is physically performed!

Who is a taxpayer?

The correct determination of the place of  supply of a service will determine in which country the given service will be subject to VAT.

The VAT Act distinguishes between determining the place of supply of services depending on whether the service is  supplied to a taxpayer or to a non-taxpayer.

This raises another question – what is meant by the term “taxpayer”?

In Article 28a of the VAT Act, the term “taxpayer” is defined specifically for the purposes of applying the chapter on the place of supply of services.

Taxpayers are therefore:

• Entities which independently conduct the economic activity;
• Legal entities not conducting business activities but identified or required to identify for VAT purposes or value-added tax.

The above definition applies to the conduct of business/identification for tax purposes both in Poland and in another EU country or a third country.

How to define non-taxpayers?

According to practice, these are all other entities (not meeting the above definition of a taxpayer).

Place of provision of services – two “golden” rules

The VAT Act defines two general rules for determining the place of  supply of services, described in Articles 28b and 28c. Specifically, if the service is provided to:

• A taxpayer, the place of  supply of the service is the place where the taxpayer receiving the service has their  registered office for economic activity(the purchaser of the service is obliged to account for VAT);
• Non-taxpayers, the place of supply of the service is the place where the service provider has their registered office for economic activity (the service provider accounts for VAT).

The location of the registered office for economic activity is of dominant importance in determining the place of supply of a service. In short, it is the place where key decisions regarding the general management of the enterprise are made.

By delving deeper into the cited articles of the VAT Act, one can also conclude that if the services are supplied to/from a fixed place of business of a given entity, located in a country other than its registered office for economic activity, the service is subject to VAT in the country where that fixed place is located.

How to identify the fixed place of business of your contractor?

This is certainly a topic for another post in our series. Generally, it is a place other than the taxpayer’s registered office for economic activity, characterized by sufficient permanence and appropriate structure in terms of personnel and technical infrastructure, enabling the taxpayer to receive and use services provided for the needs of that fixed place of business.

For example, as a Polish entrepreneur, you provide waste disposal services to a business with its business establishment in France. The French company has a fixed place of business in Poland (office, warehouse – it also employs workers in Poland) and the waste disposal services are supplied to that fixed place of business. In such a case, the service is subject to VAT in Poland because it is performed for that fixed place of business.

In cases where there is no defined  registered office for economic activity or fixed place of business, the place of supply of the service is the place where the service recipient/service provider has their permanent address or usual place of residence.

Before determining the place of supply of the service – check the exceptions

Of course, the VAT Act contains several exceptions to the above general rules. Only after excluding that these exceptions (special rules) do not apply to the taxpayer, the general rules can be applied. Exceptions apply, for example, to services related to real estate, transport services, or entrance to events. We hope we have sparked your curiosity – we will discuss the  exceptional rules in future posts in the Akademia Pana Taxa series.