Split payment is a mechanism aimed at combating VAT fraud in Poland which entered into force on 1 July 2018. Any payment made by a business entity to its suppliers may be divided into two separate payments, i.e., a payment of the net amount and a payment of the VAT amount.

This split payment means that a supplier has to provide two separate bank accounts, i.e., a regular account and a VAT account. The amounts collected by a business entity on its regular account are freely disposable. The money collected on the VAT account may only be used for payments made to VAT accounts of suppliers, payments of VAT to the tax authority, or for other purposes at the discretion of the tax authority.

Usage of the split payment mechanism will be voluntary, which means that it is up to the business entity to decide whether or not to pay the gross amount to the regular account of the supplier or to divide the payment into a net amount and a VAT amount to be paid into the separate accounts of the supplier. There are some incentives envisaged by the VAT law for taxpayers in order to encourage them to use the split payment mechanism and certain significant state-controlled enterprises have declared that they will impose the split payment mechanism upon their contractors. The Polish tax administration has stated that eventually such split payments will become obligatory.

It is worth mentioning that the split payment mechanism will apply only to B2B transactions and only to PLN accounts (i.e. not to the foreign currencies accounts). Any banks holding regular accounts for Polish VAT payers will be obliged to open new VAT accounts for their clients alongside the regular accounts.

The new laws may cause certain cash flow issues for businesses as the funds collected on the VAT accounts will have limited use. This will have an impact not only on manufacturing and trading companies, but will also affect financial institutions providing factoring services, which may require renegotiating existing arrangements with their clients.