Fixed establishment in Poland and its impact on VAT settlement for foreign companies

General VAT rule for cross-border services

Under EU VAT regulations, the general rule states that the place of supply of services provided to a foreign VAT taxpayer is the country where the recipient has its place of business. Accordingly, when services are provided to a business established outside Poland, the Polish service provider does not charge Polish VAT and does not indicate a VAT exemption. Instead, such a transaction is subject to the reverse charge mechanism.

In this case:

• The Polish seller must include a note on the invoice stating that the reverse charge applies.
• The buyer is responsible for applying local VAT rules in its country and accounting for VAT accordingly.
• The Polish supplier must collect documentation confirming that the services were provided to an entity established outside Poland.

Exception: Fixed establishment in Poland

This VAT treatment only applies if the buyer does not have a fixed establishment (FE) in Poland. If such an FE exists, the place of supply shifts to that fixed establishment, which means the services become subject to Polish VAT at domestic rates.

FE in Poland may be:

• Passive – where the foreign entity has a sufficient degree of permanence and a suitable structure in terms of human and technical resources that allow it to receive and use services for its own needs.
• Active – where it has the resources and structure to provide services itself from that location.

What constitutes a fixed establishment?

Initially, Polish tax authorities interpreted FE strictly — it was considered to exist only if the foreign taxpayer had its own employees and its own technical resources in Poland (e.g. ownership or lease of office space, equipment, etc.).

However, following the Court of Justice of the European Union judgment in case C-605/12 (Welmory) on October 16, 2014, Polish tax authorities revised their interpretation. Now, even if a foreign company uses the personnel and infrastructure of third-party contractors, this can be deemed to constitute an FE — provided that:

• The resources are permanently available to the foreign entity.
• The entity exercises a comparable level of control over the resources as it would over its own.

Practical consequences

If services are provided to an FE in Poland (rather than to a foreign head office), the place of supply is Poland, and Polish VAT must be applied. This changes the VAT treatment significantly from a standard cross-border reverse charge transaction.

Correctly determining whether an FE exists — and thus where the place of taxation lies — is crucial for both the service provider and the buyer. Incorrect classification may lead to VAT compliance issues, including financial penalties.

How we can help

Each situation requires individual analysis. We offer support in evaluating whether a fixed establishment exists in Poland and how VAT should be properly settled in your cross-border transactions.
Each case should be analyzed separately, and we will be happy to assist you in determining the tax regime of the transactions concluded.

We invite you to contact us for professional assistance tailored to your business operations.