Split Payment Mechanism (MPP)

The split payment mechanism (Mechanizm podzielonej platnosci, or MPP) is a VAT fraud prevention tool introduced in Poland under Art. 108a of the VAT Act. It requires or allows the buyer to split their payment into two parts: the net amount goes to the seller's regular bank account, and the VAT amount goes to a dedicated VAT account. Understanding when MPP is mandatory and how it works is essential for avoiding significant penalties.

How Split Payment Works

When a buyer makes a split payment, the bank automatically divides the transfer based on the information provided in a structured payment message. The buyer's bank sends:

• The net amount to the seller's operating (current) bank account
• The VAT amount to the seller's dedicated VAT account (rachunek VAT)

The buyer does not need to make two separate transfers. The split is handled by the banking system based on a special payment form that includes the invoice number, the VAT amount, the gross amount, and the seller's NIP.

Every business bank account in Poland opened for a VAT-registered entity automatically has a linked VAT account. The VAT account is managed by the bank and has restricted use.

Mandatory Split Payment

Under Art. 108a(1a), split payment is mandatory when both of the following conditions are met simultaneously:

• The gross invoice amount is 15,000 PLN or more (this is the single-invoice threshold, not a cumulative transaction value)
• The invoice includes goods or services listed in Annex 15 to the VAT Act

Annex 15 covers categories historically associated with VAT fraud, including:

• Steel and steel products — bars, pipes, profiles, plates
• Fuel — petrol, diesel, heating oil, LPG
• Electronics — laptops, tablets, smartphones, gaming consoles, hard drives
• Construction services — provided as subcontracting
• Automotive parts — tires, rims, spare parts
• Precious metals and scrap — gold, silver, copper waste
• Coal and coal products

If only one condition is met (e.g., the invoice exceeds 15,000 PLN but contains no Annex 15 items), mandatory MPP does not apply, though voluntary MPP is always available.

Invoice Annotation

When mandatory split payment applies, the invoice must contain the annotation:

"Mechanizm podzielonej platnosci"

This annotation is required under Art. 106e(1)(18a). It alerts the buyer that they must use the split payment method for this particular invoice.

Penalties for Non-Compliance

The penalties for failing to comply with mandatory MPP are severe and apply to both the seller and the buyer:

For the seller (missing annotation):

• A 30% VAT sanction on the VAT amount attributable to the Annex 15 items on the invoice where the annotation was omitted
• The sanction does not apply if the buyer still makes the payment using the split payment method despite the missing annotation

For the buyer (not using MPP when required):

• A 30% VAT sanction on the VAT amount attributable to the Annex 15 items paid without using split payment
• Loss of the right to deduct the expense as a tax cost (koszt uzyskania przychodu) for income tax (CIT/PIT) purposes — this applies to the full gross amount of the invoice
• The buyer's sanction does not apply if the seller has already accounted for the VAT from that invoice in their tax return

Voluntary Split Payment

Even when MPP is not mandatory, any buyer can choose to use it voluntarily for any domestic B2B transaction. Voluntary split payment offers several benefits:

• No joint and several liability — the buyer is not liable for the seller's unpaid VAT on the transaction (Art. 108a(6))
• No VAT sanctions — the additional 20% or 30% VAT sanctions under Art. 112b and 112c do not apply to the buyer
• Accelerated VAT refund — the buyer can apply for a 25-day VAT refund instead of the standard 60 days, provided that all input VAT invoices were paid using split payment (Art. 87(6a))
• Reduced interest on VAT arrears — lower statutory interest rate on underpayments in certain circumstances

The VAT Account (Rachunek VAT)

The VAT account has restricted functionality. Funds held in the VAT account can be used to pay:

• VAT to the seller's VAT account (via split payment)
• VAT liability to the tax office
• CIT (corporate income tax) and PIT (personal income tax) obligations
• Social security contributions (ZUS) — since November 2019
• Customs duties

To use VAT account funds for any other purpose, the taxpayer must apply to the head of the tax office for a release of funds (Art. 108b). The tax office has 60 days to respond and may refuse if the taxpayer has outstanding tax debts.

Practical Considerations

• When issuing invoices that include a mix of Annex 15 and non-Annex 15 items, mandatory MPP applies to the entire invoice if the gross total is 15,000 PLN or more and at least one Annex 15 item is present
• Foreign currency invoices: the 15,000 PLN threshold is assessed based on the PLN equivalent using the applicable exchange rate
• Splitting a transaction into multiple invoices to stay below the 15,000 PLN threshold may be treated as tax avoidance (Art. 108a(1c))
• Always verify whether the goods or services you are invoicing fall under Annex 15 — the list is specific and based on CN/PKWiU classification codes
• In KSeF, the split payment annotation is a structured field, ensuring it cannot be accidentally omitted when it is required