VAT taxpayer – how to understand the legal definition?

The definition of a taxpayer in the VAT Act is key to understanding which entities are required to settle and pay VAT in Poland.

According to Article 15 of the VAT Act, a VAT taxpayer is any individual, legal entity, or organizational unit without legal personality that independently conducts economic activity, regardless of the purpose or result of that activity.

Thus, in principle, any independent legal entity can be a VAT taxpayer, regardless of its organizational and legal form. Taxpayers can include both large corporations and small businesses, including individuals running sole proprietorships.

Economic activity is defined in VAT regulations as any activity performed by producers, traders, or service providers, including entities extracting natural resources and farmers, as well as individuals performing liberal professions. Economic activity also includes activities involving the continuous use of goods or intangible assets for profit-making purposes.

This definition is, of course, general, referring to “any activity.” In practice, determining whether specific activities constitute economic activity or not can sometimes be difficult, as it is not possible to create a “golden” rule that unambiguously assesses every case. Naturally, the circumstances and conditions under which the activities are carried out are essential. An important criterion for recognizing an activity as economic is its professional, business-like, and organized character. As a rule, individual activities performed occasionally and unprofessionally are not considered economic activities.

Regarding the use of goods or intangible assets, the legislator specifies that economic activity involves only the continuous use of goods or intangible assets. However, it should be noted that despite the statutory definition, according to the position of tax authorities, even single or sporadic activities, such as the sale of land, real estate, or other assets, should still be regarded as economic activities, provided that the circumstances of the transaction suggest that it was organized and professional.

Agricultural activities are also considered economic activity. In the case of individuals conducting solely agricultural, forestry, or fishing activities, a VAT taxpayer is the person who registers for VAT using the appropriate VAT-R form. This means that only one of the co-owners of an agricultural farm may be the VAT taxpayer – the one who registers as a VAT taxpayer for that particular farm. Other co-owners (e.g., spouses) can be separate VAT taxpayers if they engage in other agricultural activities outside the scope of that farm.

The legislator also specifies exceptions – activities that are not considered independent economic activities. These activities can generally be divided into three groups:

1. Activities of employees
2. Activities performed within the scope of personal activities
3. Activities of creators and performing artists

The first group includes activities performed by an employee within the framework of, among others, an official relationship, employment, contractual employment, and cooperative employment (as specified in Articles 12(1-6) of the PIT Act).

The second group includes personal activities, detailed in Article 13(2-9) of the PIT Act. To give an overview, this group includes income from activities such as:

• Artistic, literary, scientific, training, educational, and journalistic activities
• Social or civic duties
• Being a member of the board, supervisory board, or committee of legal entities
• Based on management contracts, managerial contracts, or similar agreements.

However, importantly, for such personal activities not to be regarded as independent economic activity, certain conditions must be met to confirm the lack of independence of the activity:

• Conditions for performing the activity – the person performing the activity uses the infrastructure and resources of the client.
• Condition of fixed remuneration – the person performing the activity receives a fixed remuneration or a significant portion of the remuneration is fixed.
• Condition of no responsibility towards third parties – the entity ordering the performance of the actvity, not the person performing the activity, bears responsibility for the actions towards third parties.

The third group consists of the activities of creators and performing artists, who receive royalties for transferring or granting licenses to copyright or artistic performance rights or for performing such activities.

In the case of these activities, as with personal activities in the second group, for them not to be considered as economic activity, conditions regarding the performance of the activity, the stability of remuneration, and the lack of responsibility of the performers towards third parties must be met.

The VAT Act also contains regulations regarding public authorities as VAT taxpayers – public authorities and the offices serving them are not considered VAT taxpayers in the scope of tasks imposed by separate laws, for the fulfillment of which they were established, except for activities performed based on civil law agreements. Thus, public authorities and offices act as VAT taxpayers when:

1. They perform tasks other than those for which they were established.
2. They perform activities within their tasks but do so under civil law agreements.

To summarize, determining whether one is a VAT taxpayer is extremely important for anyone planning to take their first steps in business. Entities meeting the criteria for VAT taxpayers are generally required to register, keep tax records, regularly submit declarations, and pay the due tax unless they are exempted from VAT for specific reasons. Proper understanding of this concept is essential to avoid serious financial and legal consequences.