Tax Explanatory Notes on SAFE allow VAT exemption in the defence sector where the exemption certificate is delayed

At a time when many businesses are considering cooperation with the military or the defence industry, the tax incentives available in this area are becoming increasingly relevant. One of the key areas in this respect is VAT and the exemptions and reduced rates applicable to defence-related supplies.

Recognising the negative impact of VAT on defence production, the EU regulation establishing the Security Action for Europe through Reinforcement of the European Defence Industry (SAFE) instrument provides for a VAT exemption with the right to deduct input VAT for supplies of defence-related products financed from SAFE funds.

Completed VAT exemption certificate received before filing the VAT return

Under EU regulations, within the SAFE instrument a VAT exemption with the right to deduct input VAT applies to supplies of defence-related products financed from this programme.

The condition for applying the exemption is that the supplier holds a completed VAT exemption certificate, duly stamped by the competent state authorities. Due to the requirement for such certificates to be completed in certain cases by two state authorities (e.g. a military administrative body) and stamped by the Ministry of National Defence, the waiting time for obtaining the completed certificate may significantly exceed the deadline for filing the VAT return (i.e. submission of the JPK_V7).

This may raise concerns for taxpayers making supplies such as military equipment, as under similar regulations concerning supplies to NATO forces in Poland, tax authorities and administrative courts take the view that if the taxpayer does not obtain the exemption certificate by the filing deadline, the 23% VAT rate must be applied instead of the 0% rate, with no possibility of subsequent correction.

With regard to supplies financed under the SAFE instrument, Poland has not adopted any specific VAT measures. However, in the tax explanatory notes of 9 March 2026 entitled “on the application of the VAT exemption for supplies of defence-related products or other products for defence purposes made under contracts resulting from procurements supported by SAFE funds” (the “Explanatory Notes”), the Ministry of Finance adopted a more taxpayer-friendly approach.

Favourable Explanatory Notes – possibility of subsequent VAT adjustment

The Explanatory Notes indicate that the VAT exemption with the right to deduct input VAT for supplies of defence products financed from SAFE funds may be applied provided that a completed and duly stamped VAT exemption certificate is obtained. This document must be received before the deadline for filing the tax return for the period in which the supply was made or the advance payment was received.

However, the Explanatory Notes are more favourable than the rules applicable to supplies for NATO forces, as in the absence of the certificate the supplier should first apply the appropriate VAT rate to the transaction and subsequently adjust the VAT settlement once the certificate is obtained.

In this case, the adjustment is not made by correcting the VAT return, but by issuing a corrective invoice (credit note) and recognising it in accordance with the applicable rules:

• for structured corrective invoices (issued in KSeF) – at the date of issuance,

• for electronic or paper corrective invoices – in the settlement for the month in which the taxpayer receives confirmation of receipt of the corrective invoice by the customer.

The possibility to adjust settlements where there is a prolonged delay in obtaining the VAT exemption certificate should be assessed positively, as there are no grounds for making the application of the exemption dependent on the efficiency of administrative authorities.

Protective effect of tax explanatory notes

It should be borne in mind that tax Explanatory Notes provide taxpayers who follow them with protection similar to that provided by an individual tax ruling. This means that taxpayers making supplies financed under the SAFE instrument may rely on the guidance contained therein, and tax authorities should not challenge such approach. Taxpayers who have applied the standard VAT rate will be able, on the basis of the Explanatory Notes, to make adjustments and recover the output VAT paid, provided that they subsequently obtain the VAT exemption certificate.

The Explanatory Notes also address several other important practical issues related to the VAT treatment of supplies financed under SAFE, which will be discussed in subsequent posts on our blog.

Summary

The indication in the Explanatory Notes of the possibility to make a subsequent VAT adjustment in the event of delays in obtaining the exemption certificate should be viewed positively. This solution introduces a more flexible and practical approach to VAT settlements in the defence sector in connection with projects financed under SAFE.

Do you want to account for VAT safely in defence projects?

Contact us to verify how to correctly apply VAT exemptions and other obligations applicable to supplies under the SAFE instrument and to mitigate tax risks in contracts with the defence sector.