How does VAT payable work for IT services and why is it worthwhile to be VAT registered?

It is important to note that when providing services to companies outside of Poland, these transactions do not trigger VAT obligations, regardless of transaction amounts. Being VAT registered additionally provides the right to obtain VAT refunds from the Tax Office for purchases of goods and services related to business activities, resulting in regular reimbursements from the tax authorities.

The list of expenses that qualify for VAT refunds is detailed in the following article: https://podatki-w-it.pl/guide-the-right-to-vat-refund/

With regard to transactions for companies in Poland, there is the option to choose a VAT exemption up to a revenue threshold of 200,000 PLN annually. If a business is established during the tax year, the exemption is prorated. Assuming a business starts in May 2024, the exemption would be calculated as 200,000 PLN / 12 months * 8 months = 133,333.33 PLN. However, such exemption might not be beneficial as VAT. If we apply VAT, VAT is added on top of the basic agreed salary resulting in receiving more funds than anticipated.

Thus, for Polish companies offering services to other Polish businesses, adding VAT to transactions does not burden the business owners as the counterparty has the right to reclaim the VAT from the tax authorities. As a result, leveraging VAT services in transactions among Polish entities has no significant impact on transaction costs and allows for VAT reimbursement for purchases of goods and services related to business activities.

In conclusion, VAT registration in Poland becomes a tool for cost optimization and increased efficiency in IT services operations, eliminating the need to tax foreign services and ensuring regular VAT refunds for purchases. This enables entrepreneurs to effectively manage finances and enhance competitiveness in the market.