The PLN 200,000 threshold, exemption conditions, loss of entitlement and the decision to register for VAT – a practical guide for entrepreneurs running a sole proprietorship or a company.
The subjective VAT exemption is one of the first choices a new entrepreneur faces. It seems straightforward – if turnover does not exceed PLN 200,000 per year, there is no need to register as a VAT taxpayer. In practice, however, the decision is not always obvious. In this article we explain who meets the conditions for the exemption, what its advantages and pitfalls are, and in which situations voluntary VAT registration proves more beneficial.
The subjective VAT exemption is governed by Article 113 of the Act on tax on goods and services. It allows a business to operate without the need to charge and remit VAT, provided that the value of sales in the previous tax year did not exceed PLN 200,000 net. For businesses commencing operations during the year, the threshold is proportional – it is calculated using the formula: PLN 200,000 × number of days of business activity / 365. This exemption applies exclusively to taxpayers whose turnover falls within the threshold. It is not the same as a subjective exemption, which covers specific categories of goods and services regardless of the scale of sales.
The legislator explicitly excludes certain categories of taxpayers and types of sales from the possibility of using the subjective exemption. Even with turnover below PLN 200,000, VAT registration is mandatory when: • you sell excise goods (e.g. alcohol, tobacco products, fuels), • you trade in real estate or provide services relating to its sale, • you provide legal, advisory or jewellery services, • you carry out intra-Community supply of goods (WDT) or distance sales to other EU countries, • you sell new means of transport. Before setting up a business, it is worth checking the PKD codes of the planned activity against these exclusions – an incorrect assumption about entitlement to the exemption may result in tax arrears.
The subjective exemption is most beneficial when your clients are individuals not conducting business activity (B2C). For them, the gross price is the final price – they cannot deduct VAT, so your offer without the tax is simply cheaper or gives you a higher margin. Additional advantages of the exemption: • no obligation to submit VAT returns (JPK_V7), • less bureaucracy and lower accounting service costs, • simpler invoicing – you do not show a VAT rate on the invoice, • better cash flow – you do not have to advance tax to the US. The exemption works well in personal services, small local trade, freelance or craft activities – wherever the retail customer is the primary recipient.
Registering as an active VAT taxpayer is often profitable or even essential in several scenarios. 1. Clients are companies (B2B) – counterparties registered for VAT can deduct input tax, so the gross price ceases to be an issue. For them, an invoice without VAT can even appear suspicious. 2. High investment purchases – if you incur significant expenditure at the outset (equipment, machinery, renovation), deducting VAT on those purchases can bring a real financial benefit. 3. Cooperation with EU partners – intra-Community transactions require registration for VAT-UE. 4. You plan dynamic turnover growth – it is better to register voluntarily earlier than to exceed the threshold and be forced to correct settlements retroactively. Voluntary registration is possible at any time – it is sufficient to submit the VAT-R form.
Exceeding the PLN 200,000 sales threshold in a given tax year means the exemption is lost at the moment the transaction that exceeds it is made. VAT must be charged from that specific sale onwards. Obligations after exceeding the threshold: • VAT registration (VAT-R form) before making that transaction or immediately upon establishing that it has been exceeded, • issuing an invoice with the correct VAT rate, • maintaining VAT records and submitting JPK_V7 (monthly or quarterly). A common mistake is overlooking the moment the threshold is crossed. It is therefore worth monitoring turnover on an ongoing basis – particularly in the fourth quarter of the year, when sales tend to be seasonally higher. Negligence may result in having to pay VAT out of one's own pocket, with no possibility of passing it on to the client after the fact.
VAT taxpayer status (or its absence) does not directly affect the amount of the health insurance contribution or the choice of income tax form. You can use the subjective VAT exemption regardless of whether you settle on general principles, flat-rate income tax or the lump-sum tax on recorded revenues (ryczałt). It is worth bearing in mind, however, that the ryczałt on recorded revenues is based on gross revenues (excluding VAT for active taxpayers), which may affect the comparison of tax burdens between an exempt and an active VAT taxpayer. From 2026, KSeF is also mandatory for the majority of entrepreneurs. Taxpayers exempt from VAT were included in the KSeF implementation schedule at a later stage – however, it is worth following current regulations, as deadlines may change.
The subjective VAT exemption is a valuable tool for small entrepreneurs serving retail customers, but it is not a universal solution. The key is to analyse the customer structure, planned purchases and the pace of company growth. If you have doubts about which solution is more beneficial in your case, contact Danexis accounting office – call +48 780 760 666 or write to kontakt@danexis.pl. We will help you choose the optimal tax strategy.