Every business venture which operates in Poland must keep its accounts. The scope and method of accounting data processing depends on the form of business. This may include the flat rate tax, which is the easiest to state, the simplified accountancy, applicable to proprietorship, or the full accountancy, applicable to larger commercial entities. In each case, it is recommended to consult a tax advisor. This is indispensable and critical to limited liability companies and joint-stock companies.
Each legal business activity in Poland follows principles regulated by the government. On one hand, the state laws guarantee the liberty of business to everyone, while on the other, they protect the common interest of all Polish citizens by requiring businesses to pay specific taxes. One of the objectives of managing accounts by precisely set out laws that apply to all business operators is reliable and true statement of tax liabilities. Most SMEs see the purpose of accounting in this way.
As their scale of business operations increase, many corporations change the principles of business management. Proprietorships are transformed into LLCs, and LLCs become joint-stock companies. As the scale is increased, a different aspect of bookkeeping becomes increasingly important: supervision over cash flows, optimisation of expenditure, debt collection control, and appraising the real value of the corporation, which is a major issue for the shareholders. In essence, accounting is a multidisciplinary science.
Stereotypes and the reality
The cliché accountant is not a very appealing image: an introvert, pedantic person who obsesses over a discrepancy between accounts counted in mere pennies with millions of turnover. A creature confined to its own, strange and hermetic world, much alike the people down at IT.
An idea for business does not cut it alone; you need to fund it and turn it into reality. This is when accountants come to the rescue, the specialists versed in the tax and accounting laws, and armed with the precision, scrutiny and up to date professional insight.
In reality, accountants are highly skilled professionals on whom the fate of entire corporations hinges more often than not. Large account departments always require specialists dedicated to income tax, VAT and other fiscal fields. An accountant with an accomplished eduction is a unicorn, a creature of myth. The frequent changes in record-keeping laws and regulations (especially in the Polish reality) force everyone who has anything to do with accounting to continuously educate themselves. Accountants also need to understand and master the tools of the trade: dedicated computer software and office suites. If a company operates on international markets, add foreign languages and knowledge of international record-keeping standards to the list of necessary skills.
A good and reliable accountant is a living and breathing treasure trove that needs adequate recognition and appreciation from their employer, lest they move to a competitor.
Accounting and company standing
The laws on enterprise and tax ordinance are not always unambiguous. In many circumstances, businessmen can enjoy certain liberties in how they should state their EBIT and expenditures. They may either take advantage of tax exemptions or relieves, or spread their liabilities over time. The Fiscal Offices have no obligation to help business ventures choose the most advantageous solutions. This is the job of accountants. An optimum fiscal solution may bring about huge savings which, when invested, will boost the growth rate and improve the market position. Conversely, an error in construction of laws may result in heavy fines that might compromise further business operations.
The potential effects of abusing the wonders of creative accounting can be illustrated with two examples.
After a cascade of spectacular financial crashes that rolled over corporations which had been rated as financially sound, the hype term “creative accounting” was born, denoting practices intended to improve the corporate image with ruses played in bookkeeping. Corporate boards used these tricks to convince their customers and shareholders that their money had been invested well, and the financial results keep improving year after year.
0% VAT rate
Taxation with 0% VAT is the most advantageous solution for many businessmen, since in practical terms it results in zero tax on transactions that are still qualified as eligible for VAT. This makes it possible to deduct the tax calculated at the purchase of goods and services related to sales. In other words, the 0% VAT rate works like a VAT exemption with the right of deduction.
A goods type or a service can also be exempt from VAT, but this comes without any right to deduct the VAT due from the purchase of goods and services related to sales.
Chief Financial Officer at WIŚNIOWSKI
This year, an investigation led by an international team of journalists and reporters, uncovered the gargantuan scale of unfair fiscal practices consisting in diverting money to tax havens. Both these cases exemplify the Dark Side of accounting. Ruthless exploitation of procedural loopholes, ambiguous definitions and weak regulations help operate on the verge of what is legal and bend the facts for substantial financial gains. The bottom line is that running these risks is simply unprofitable. Corporations go bust, while the business owners go to prison.
Accountant in employ or outsourcing?
Small scale business ventures cut the costs by handling their accounts personally or by outsourcing them to professionals.. The former is practically only possible with the simplified accountancy for proprietorship.
Corporations, especially LLCs, are required to manage the full accountancy. The scope of know-how required to manage proper records and the related labour consumption are so staggering that nearly no business owner manages the accounts alone. The owner either outsources or hires accountants. The choice depends on the expectations of particular businesses and the payroll budget.
When deciding whether to outsource or hire, remember that accountants are not simply “those people who manage the financial records in the right way”. In case of fiscal disputes, your accountant may represent you as the taxpayer before the tax inspection authorities, and the clash between your business and the fiscal opponent may hinge on the qualifications, experience, and sometimes the very intuition of the accountant. A businessman who wants to outsource their accounting management from a third party must make sure that the outsourcing contract includes representation before official authorities. Many accounting service providers reject that responsibility. Hence if a tax raid swoops in, the businessman will be left alone.
Note that the consequences of negligence in accounting and tax statements will always directly encumber the businessman. If the errors are committed by an accountant, their employer may exercise their rights before a court of law; however, the tax inspection authority handling the issue might not necessarily see this as an extenuating circumstance.
Hiring an accountant is the best solution for medium enterprises. This way the business owners are sure that there is a specialist dedicated to his business only, a man who will thoroughly understand the corporate structure and the specifics of its business, and who, in time, will gain the full insight into the legacy financial operations and the principles of settling customer accounts. An accounting department of your own means that the confidential particulars of your business will stay in house.
VAT: a tax under special supervision
VAT is one of the most interesting and difficult accounting issues in Poland. It was introduced in Poland first in 1993, followed by its major amendments in 2004 to harmonize the Polish laws with the EU regulations and directives.
The VAT Act is most likely the most complex and complicated legal regulations of the Polish tax policy. Different VAT rates and vague criteria of eligibility of products and services for specific VAT categories make it chillingly easy to make a mistake that the tax inspection authorities might view as material non-compliance. This risk is especially high when you operate in several different industries, and your business is made even more complicated by trading with EU and non-EU countries.
The VAT shows clearly that overly complicated laws on liabilities calculation may backfire on the state and the businessmen alike. The first of these two cases is illustrated by numerous scandals of wrongful VAT deductions by forgery of statement. The misappropriated amounts amount to many millions in PLN, and the detection rate of these practices is not impressive.
On the other hand, there is a certain arbitrariness in the construction of the law by the Fiscal Offices which has lead to punishing honest businessmen, shutting down their companies and laying off their employees.
The importance of VAT in the state budget and the ease with which dishonest businessmen can extract undue VAT reimbursement force the Fiscal Offices to great scrutiny in investigation of VAT payers. This alone should convince you to have very experienced accountants settle your VAT.
Author: Piotr Kołaczek
Changes to VAT in 2016
- Amendments to the statement of VAT are in effect since 1 January 2016.
- An increase of VAT from 8% to 23% on deliveries of goods for fire protection.
- The new VAT jurisdiction of tax authorities. Depending on the circumstances, PIT and VAT statements were sometimes submitted separately, in different Fiscal Offices in Poland. From the 1st of January, the proper jurisdiction over the taxpayers is the jurisdiction the Fiscal Office Master at the place of residence or registered office of the taxpayers.
- A regulation is in force which establishes the VAT deduction from purchases for mixed business, i.e. a business involving deliveries of both VAT eligible and VAT exempt goods. The VAT deduction rate is now established by percentage per annum and rounded up to the nearest integer.
- Article 37 Section 1a of the VAT Code includes a regulation that enforces the application of the regulations cited from 1 January 2016 in Article 65 Sections 6a and 6b of the Customs Code. This legal change will enable the execution of the VAT rates increased or decreased by delay, as applicable. The interest due for the VAT on import will reflect the percentage accrued according to the Customs Code.
- The Fiscal Office Masters will now have the jurisdiction to determine the amount of excess VAT for import and its reimbursement.
- The regulations on the VAT exemption for bad debts now consider the restructuring procedure as follows: The VAT exemption for bad debts is precluded when goods or services are provided to taxpayers or debtors under the restructuring procedure. The obligation of adjusting the VAT deducted by debtors who are under the restructuring procedure is now removed.