Bad debt relief provides VAT-registered businesses with a mechanism to recover VAT when clients fail to pay for goods or services. Conversely, debtors are required to adjust previously claimed input VAT on unpaid invoices.

The issue of bad debt relief in Poland has been the subject of considerable debate and has even reached the Court of Justice of the European Union on several occasions. Questions surrounding its application, particularly in complex scenarios such as debt transfers through factoring or B2C unpaid supplies, have led to ongoing uncertainties. Given these ambiguities, it is possible that further legislative changes may be introduced to clarify the rules governing bad debt relief.

Currently, to qualify for bad debt relief, several conditions must be met:

  • invoice was not paid / receivable was not sold within 90 days from the payment deadline;
  • the supply must be made by an active VAT taxpayer not involved in restructuring, bankruptcy, or liquidation proceedings;
  • on the day before filing the tax declaration for the adjustment the creditor still must be active VAT taxpayers;
  • 3 years have not elapsed since the issuance of the invoice (counted from the end of the year in which it was issued);
  • in case of B2C supply – additional rules need to be verified.

The correction for bad debt relief is carried out either by the creditor or the debtor:

  • creditor’s correction: It's done in the settlement for the period after 90 days have passed from the payment deadline specified in the contract or invoice. The creditor must inform about the correction in SAF-T for VAT (VAT return) submitted;
  • debtor’s correction: If the debtor fails to pay within 90 days from the payment deadline, deducted input VAT has to be corrected in the settlement for the period following the 90th day. However, this obligation doesn't apply if the debtor settles the amount due by the last day of the billing period in which the 90th day has expired. If only a portion of the amount due is settled, the correction applies to the VAT related to the outstanding balance.

Importantly, if the debt is later recovered after making a VAT adjustment, the business must submit a further correction. This applies even for partial debt recovery, with the VAT repayment reflecting the amount reclaimed. The same rules apply to the debtor, who must report the repaid sum as a positive VAT adjustment.

If you have any doubts about how to apply bad debt relief or would like to understand the current approach in Poland, we invite you to contact us for professional guidance.

Visit our page >> Tax Compliance