Application of the split payment mechanism in Poland extended until 2028 – what does this mean for taxpayers?
5 March 2025
Poland has long been one of the few countries in the European Union that applies the mandatory split payment mechanism (in Polish: mechanizm podzielonej płatności; MPP) in VAT settlements. This solution, which initially sparked a great deal of controversy, has proven to be an effective tool in combating tax fraud.
The split payment mechanism will remain in force in Poland for the next three years. In an executive decision of February 18, 2025, the EU Council approved the extension of its application until February 29, 2028. This means that entrepreneurs will still be required to make payments using the split payment system for transactions covered by this mechanism.
What is split payment mechanism?
The split payment mechanism (MPP) is a method of settling payments for goods and services aimed at increasing the security of VAT settlements and reducing tax fraud. Under this system, the payment made by the purchaser is automatically divided – the net amount is transferred to the seller’s regular account, while the VAT is transferred to his special VAT account. Funds accumulated in this account can only be used for legally specified purposes, such as paying VAT to the tax office.
In Poland, VAT taxpayers are required to apply the split payment mechanism if they:
- Sell or purchase “sensitive” goods or services, which are listed in Annex 15 of the VAT Act, and at the same time
- The total amount due on the invoice, i.e., the gross value of the entire invoice, exceeds PLN 15,000 (or its equivalent in foreign currency).
In other cases, the use of split payment is voluntary.
However, it is important to note that failure to apply mandatory split payment may result in the imposition of an additional liability of 30% of the VAT amount indicated on the invoice having been subject to the split payment obligation.
Effectiveness of the split payment mechanism
The data presented by the Polish government are unequivocal – the split payment mechanism works. In 2018, before the introduction of mandatory split payment, the value of VAT fraud amounted to nearly PLN 5.2 billion. In 2022, this amount decreased to just under PLN 1.7 billion. Furthermore, the number of proceedings related to VAT fraud decreased from 3,507 in 2018 to 2,750 in 2022. This evidence shows that split payment effectively reduces budget losses related to tax fraud.
Benefits for taxpayers resulting from the split payment mechanism
The split payment mechanism brings benefits not only to the state budget but also to taxpayers. Among the key advantages are:
- Presumption of due diligence – taxpayers using split payment are less likely to have their right to deduct input VAT challenged by tax authorities.
- No sanctions – a transfer to a bank account not listed in the VAT taxpayer register does not lead to sanctions if the payment was made under use of split payment mechanism.
- Accelerated VAT refunds – funds accumulated in the VAT account can be refunded to taxpayers more quickly, improving their cash flow.
Challenges associated with the split payment mechanism
Despite its advantages, the split payment mechanism also generates a number of challenges, particularly in the proper classification of transactions. Problems arise in situations such as:
- Construction services – some construction services are subject to application of split payment, while others are not, leading to the risk of incorrect transaction classification.
- Multi-stage transactions – the division of invoicing into stages can impact the obligation to apply split payment.
- Payments in foreign currencies – The need to convert the VAT amount into PLN can create difficulties in processing payments.
Changes to Annex 15 of the VAT Act
With the EU Council’s decision, changes were also introduced to Annex 15 of the VAT Act. The current PKWiU (Polish Classification of Goods and Services) classification will be replaced by the Combined Nomenclature (CN), which aims to simplify the classification system for goods and services subject to the split payment obligation. This change will not affect the scope of the mechanism but may lead to new interpretations of the regulations.
Summary
The continued operation of the split payment mechanism in Poland for entrepreneurs means the need for ongoing adjustment to the applicable regulations, as well as awareness of the potential benefits and risks associated with applying split payment mechanism. To avoid the risk of sanctions and errors in VAT settlements, it is advisable to seek for tax advisory services and ensure that transactions are properly classified and settled.
Would you like to ensure that you are applying split payment correctly? Contact us – our experts will help you navigating properly the tax complexities and ensuring your business’s safety.
Legal basis:
If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.
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