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Problems with tax registration for companies using virtual offices

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Co-working offices have become an alternative for companies which do not need a permanent residence. Unfortunately, there have recently been problems with tax registration.

This problem did not exist until recently. Many business owners, whose operation does not require a stationary residence, would decide to run their business by signing a contract for a virtual office and providing such address to the authorities. Unfortunately, recently tax offices have embarked on a fight with those businessmen, refusing to assign them a VAT identification number or to register them for VAT purposes.

A co-working office

A virtual office or a co-working office is a service consisting of outsourcing the office's operation depending on the client's needs. The service usually enables the business owner to use a given postal address, phone number or a fax number, and its often extended to include additional modules, like the possibility to lease work stations or conference halls on hourly basis, as well as providing accounting services for the party. A virtual office's client is informed about the correspondence directed to them (usually in the form of scans) and is provided with access to it.

This solution allows for a significant reduction in the costs relating to leasing a property, furnishing it and equipping with office devices, using various media and employing workers. Basic packages of services for co-working offices do not usually exceed a few hundred Zloty, therefore providing an attractive solution for newly established corporations or other parties, whose business operation does not require using a permanent office.

The tax office says "NO"

Although the form of virtual offices has been known to tax offices for a long time, more and more often business owners encounter difficulties on their part. According to the Ministry of Finance, the activity of businesses registered in this way is harmful to the country's budget, as it makes it impossible for Inland Revenue officers to reach the owners of those corporations. The department also claims, that parties using virtual offices often deal with trading in fuel, scrap metal, building works or financial mediation and they commit penal revenue offences in those areas.

Legal provisions impose an obligation on the business owners to attach a document proving their entitlement for the use of a given location or a property where their business is situated to the registration application. If such a document is an agreement for a virtual office, tax offices frequently refuse to assign a VAT identification number. While justifying their decision, tax authorities usually claim, that an office is too small (it lacks rooms for meetings with the clients), the management does not hold sessions at the given address or that there is no space for the storage of the company's documentation.

Is the tax authorities' position right?

The provisions of the Act on the registration and identification of taxpayers from the 13th of October 1995 essentially instruct the authorities to assign a VAT identification number to a party which has filed an appropriate motion. Only the Article 8c, paragraph 1 of the Act anticipates that the head of a tax office may issue a decision to refuse to assign a VAT identification number in case of: (i) the lack of capability to provide evidence of the party's identification or existence, (ii) finding that the identification application provided does not satisfy the terms applicable to this application, (iii) when the party has been assigned a VAT identification number or (iv) in case of applying for a VAT identification number by a tax payer being a physical person included in the PESEL register who does not conduct a business operation or is not a registered VAT taxpayer. Only the abovementioned four cases justify issuing a negative decision. It is therefore clear that tax authorities have no evident legal grounds to refuse assigning a VAT identification number to a party using a co-working office, as a co-working agreement confirms the business owner's right to use a virtual office, although the scope of it is slightly different and more narrow that the one of a lease agreement.

An unsolvable problem?

The problem of actually preventing a group of companies to run a business by tax offices may prove to be difficult to solve. The guidelines of the Department of Finance aim to prevent offences being committed, but they result in stopping tax registration of business owners just on the grounds of the possibility of offences being committed, and not of actual crimes or offences being committed or even of attempts being made to commit them. A use of outsourcing of office services is not a criminal behaviour and should not result in difficulties occurring in the tax registration process. It leads to an infringement into the economic freedom in business.

Due to the situation, part of virtual offices have decided to offer their clients a share of an office space apart from the virtual office service. Such solutions are welcomed by tax offices, however, they are a breach of the co-working offices idea, which also lowers their attractiveness for the clients due to higher fees related to expanding the service to a lease. Moreover, they do not resolve the problem of revenue crimes, which the Ministry of Finance wants to prevent, because leasing a few square metres does not give a business owner a real capability of running a business in that space, but it still allows for criminal behaviour. Because of that the problem described above remains unsolved and requires a change in tax authorities' attitude towards business owners.


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