Fixed establishment and the National e-Invoicing System - what you need to know?

Fixed establishment and the National e-Invoicing System – what you need to know?

2024 / 09 / 10

With the imminent entry into force of the mandatory National e-Invoicing System (KSeF), foreign entities operating on the Polish market are increasingly concerned about the applicability of the new rules to their business. In this context, it is essential to determine whether an entity has a fixed establishment (or ‘FE’) in Poland, which means that it will be obliged to comply with the KSeF requirements.

We would like to remind you that the obligation to use the KSeF applies to:

entities registered as VAT payers, having their registered office in Poland.
foreign companies having a fixed establishment in Poland.

In practice, this means that if a taxpayer has an FE in Poland, the taxpayer will be obliged to issue invoices through KSeF. So far, taxpayers have often opted not to have this issue confirmed in the form of an individual tax ruling due to the potential need to adjust VAT payments resulting from the purchase and supply of services in the country and the relatively strict approach of the Polish authorities to this issue, as demonstrated before 2020. Currently, however, as the approach of the tax authorities has become more lenient (as a direct result of some favorable rulings of the European Court of Justice in this respect), and given that incorrect recognition of FE in Poland may generate an additional risk of potential fines (sanctions for invoicing outside the KSeF), we can consider it a good time to confirm the existence or non-existence of a fixed establishment in Poland..

Fixed establishment – what is it?

A fixed establishment in Poland for VAT purposes refers to a situation where a company meets certain core requirements of permanence and is able to consume (passive FE) or supply services (active FE).

Although the VAT Act does not contain an explicit definition of FE, its interpretation is based on the provisions of the Community law, the jurisprudence of the Court of Justice of the European Union and the national case law.

The analysis of the foregoing leads to a conclusion that “FE” is a place other than the taxpayer’s registered office, which is characterized by:

sufficient degree of permanence of the business pursued;
an appropriate structure in terms of human and technical resources;
the ability to consume or provide services;
the ability to perform certain business functions independently of the taxpayer’s registered office.

Thus, the risk of a foreign company being considered to have an FE in Poland may arise if, inter alia, the company:

has branches or subsidiaries operating in Poland,
employs (or has at its disposal) employees in Poland,
owns or has at its disposal offices, warehouses or other infrastructure such as equipment or machinery in Poland;
owns real estate in the territory of Poland together with the personnel operating it;
has contracts of indefinite duration in Poland;
provides or consumes services on the territory of Poland;
makes operational decisions regarding its activities in Poland independently of the head office.

It is important to note that the fulfilment of the above requirements may lead to the risk of recognizing the existence of an FE in Poland, but to be absolutely sure, each case should be considered individually. It is possible that the above requirements are not met and an FE does exist, and alternatively – although some of the above requirements are met, the entity does not have an FE in Poland.

Consequences of having an FE Poland

A foreign company that has an FE in Poland faces a number of tax and administrative consequences. Firstly, if a foreign company has a fixed establishment in Poland, the services provided by and to such an establishment are generally taxed in Poland (and not, for example, in the country of the company’s registered office using the so-called reverse charge).

This means that a company with an FE is obliged to register as a VAT payer in Poland and submit VAT returns in accordance with Polish regulations (similar to foreign companies that only report the movement of goods in Poland for VAT purposes), but in addition it reports the provision of its services in Poland (i.e. at the domestic rate and not VAT-free on a reverse charge basis from the country of its registered office). In addition, the presence of an FE also enables the deduction of input VAT on services purchased for the purposes of the FE’s activities in Poland.

With the entry into force of the mandatory KSeF, the obligation to issue invoices through the KSeF and the risk of sanctions for doing so outside this system should also be added to the above.

Failure to issue an invoice through KSeF, despite the obligation to do so, may result in severe fines of up to 100 per cent of the amount of VAT shown on the invoice (or 18.7 per cent of the invoice amount if no tax was shown on the invoice).

How can this risk be mitigated?

In order to minimise the risk of having an FE in Poland without being aware of it, it is advisable to apply to the Head of the National Tax Information Office for an individual ruling in this regard, relying on the CJEU rulings that are favourable to taxpayers. In this way, it can be conclusively determined whether there is an FE in Poland and whether the entity is obliged to use the KSeF.

In view of the above, we encourage you to carefully analyze your tax situation and consider submitting such a request if the outcome of the analysis gives rise to any doubt as to your status. Early confirmation of this issue will help avoid future complications and ensure full compliance with the new legislation.

If you have any questions or doubts, our team is here to help. We can help you interpret the regulations and advise you on the steps you need to take to comply with the KSeF requirements.

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