Simplified tax system (STS) and value added tax (VAT) – a strategic choice in 2025:
The choice between general VAT rates and reduced VAT rates for the simplified taxation system in 2025 is not just a matter of tax optimization, but a strategic move that requires an in-depth analysis of business specifics. The optimal path depends on the specific situation, not on universal recommendations.
Advantages of reduced VAT rates (5% or 7%)
- More competitive pricing: Offering lower prices to counterparties, which is particularly relevant in a competitive market. This gives you an advantage in attracting customers if your business is value-for-money orientated.
- Reduction of the ‘simplified’ tax base (for the ‘income minus expenses’ object): It is possible to include ‘input’ VAT in expenses, which reduces the taxable base for the simplified tax system. This is a significant saving factor for companies with a high share of purchases.
- Risk mitigation: The absence of input VAT deductions minimizes potential tax disputes and accusations of artificial understatement of the tax base.
Disadvantages of reduced VAT rates
Lack of VAT deductions: This is a key disadvantage that directly affects the final tax burden. This can be compensated for if the share of costs not subject to VAT (e.g. wages and salaries) is high.
Restrictions for the object ‘income’: For STS taxpayers with the ‘income’ object, reduced VAT rates are meaningless, as ‘input’ VAT is not accounted for.
Financial liabilities at transition/exit: The need to recover previously deductible VAT amounts at transition to reduced rates and compliance with the 12-quarter period of application, which requires planning. The risk of losing the right to reduced rates when a certain level of income is exceeded. This risk, with proper planning, can be minimized.
Restrictions on the application of the zero rate of VAT: STS taxpayers working at reduced rates are restricted in applying the zero rate of VAT, unlike those working at the general rates.
Advantages of general VAT rates
- Full deduction of ‘input’ VAT: The possibility of including all VAT costs in the taxable base, which may be more favourable if the share of such costs is high.
- Broader scope for applying zero-rate VAT: Access to zero-rate VAT on a wide range of transactions (export, international transport, etc.), which may be critical for businesses with international connections.
Factors influencing the choice
- Cost structure: The share of costs without VAT (e.g. wages and salaries) plays a key role. A high share of such costs makes reduced rates more attractive.
- Customer profile: If the main customers are VAT exempt companies, reduced rates may be more favourable.
- Business development plans: A forecast of future revenue growth is important, as exceeding a certain threshold may lead to loss of eligibility for reduced rates.
- Specific operations and activities: Consider the specific nature of the operations your business carries out and the possibility of applying different VAT rates.