What is the split payment mechanism?
The split payment mechanism is a method of settling VAT payments in which the gross amount shown on an invoice is divided into two parts. The net amount is paid to the supplier’s regular bank account, while the VAT amount is transferred to a dedicated VAT account connected with that bank account. In Poland, the mechanism is regulated primarily by the Act of 11 March 2004 on tax on goods and services, in particular Article 108a and related provisions.
The purpose of split payment is to reduce VAT fraud and secure the VAT portion of a transaction. The supplier receives the commercial value of the transaction on its ordinary account, but access to the VAT amount is limited by law. Funds accumulated on the VAT account may generally be used for purposes specified in tax and banking regulations, including payment of VAT and certain other public law liabilities. Release of funds for other purposes may require a decision of the tax authority.
In practice, split payment affects the way invoices are paid, how cash flow is managed and how transaction risk is assessed. It is relevant not only for tax departments, but also for finance teams, accounting staff, management boards and persons responsible for contracts and payments.
How does the split payment mechanism work?
Split payment is made through a special bank transfer message. The buyer indicates, among other things, the invoice number, the supplier’s tax identification number, the gross amount and the VAT amount. The bank then automatically divides the payment between the supplier’s standard settlement account and the supplier’s VAT account.
In Poland, split payment may be voluntary or mandatory. The mandatory split payment mechanism applies to certain B2B transactions involving goods or services listed in Annex 15 to the VAT Act, provided that the total amount due on the invoice exceeds PLN 15,000 gross or its equivalent. This threshold and the legal basis result from Article 108a(1a) of the Polish VAT Act, read together with the PLN 15,000 threshold referred to in Article 19 of the Entrepreneurs’ Law and Annex 15 to the VAT Act. In such cases, the invoice should include the wording “mechanizm podzielonej płatności”, as required by Article 106e(1)(18a) of the VAT Act.
The mechanism applies to payments made in Polish zloty through bank accounts maintained in Poland. It is not a separate tax, but a specific payment method linked to VAT settlements. Its use may also influence certain tax risk safeguards, including protection against selected VAT-related sanctions or joint and several liability, provided that statutory conditions are met.
When is split payment important for businesses?
The split payment mechanism is particularly important for companies operating in sectors covered by Annex 15 to the VAT Act, such as selected steel products, electronics, fuels, waste, construction services and other categories identified by the statute. It is also relevant for businesses that regularly receive high-value invoices from Polish VAT taxpayers or make payments to contractors operating in higher-risk sectors.
For buyers, the key issue is whether a payment should be made using split payment. Failure to apply mandatory split payment may result in tax consequences, including restrictions on deducting certain expenses for income tax purposes or VAT sanctions, depending on the circumstances and the applicable provisions. For sellers, the mechanism may affect liquidity, because the VAT component is credited to a VAT account and cannot be freely used in the same way as funds on an ordinary business account.
Split payment should also be considered in contract drafting, invoice approval procedures, accounting systems and payment workflows. A company should be able to identify transactions subject to mandatory split payment before the payment is executed. This often requires coordination between legal, tax, accounting and operational teams.
When should legal or tax advice be obtained?
Legal or tax advice may be needed when a business is unsure whether a particular transaction falls within the mandatory split payment rules, especially where the subject matter of the invoice is complex or includes several goods or services. Advice may also be necessary when an invoice lacks the mandatory annotation, when payment was made using the wrong method, or when a contractor requests a payment structure that raises VAT compliance concerns.
Entrepreneurs should also seek support when implementing internal procedures for invoice verification, payment approval and VAT account management. A short consultation before payment is made may help avoid incorrect settlements, disputes with contractors, tax arrears, sanctions or avoidable financial losses. This is particularly important in transactions involving recurring supplies, framework agreements, mixed invoices or high-value payments.
Support in matters involving the split payment mechanism
Legal support in this area may include both transaction-level advice and broader compliance work. The objective is to determine when split payment is required, how it should be documented and how to reduce tax and contractual risk connected with VAT settlements.
Support provided by a law firm in relation to the split payment mechanism may include in particular:
- analysis of whether a transaction is subject to mandatory split payment under the Polish VAT Act,
- review of invoices, contracts and payment terms from the perspective of VAT settlement risks,
- assessment of consequences of omitted or incorrect split payment,
- preparation or review of internal payment and invoice approval procedures,
- support in correspondence with contractors regarding invoice annotations and payment method,
- assistance in matters involving VAT accounts and applications for release of funds,
- coordination of legal, tax and accounting aspects of high-value commercial transactions.
Need assistance with the split payment mechanism? Contact us.
See also
- Tax Law
- Corporate tax
- Commercial Law
- Financial reporting