Publication date: November 13, 2024
Virtual office and registration as an active VAT taxpayer
A virtual office is an innovative method of reducing the costs of running a business. It allows to establish a legal seat of business in a specific location without having to run a traditional office. This is a particularly good solution for individual businesses run by freelancers working remotely, who can provide their services from all over the world and do not need a traditional office, but also for foreign investors who are unable to manage an office in Poland on an ongoing basis and do not want to rent premises and hire staff for this purpose. Virtual offices are usually managed by experienced office administration specialists who are able to handle incoming correspondence, store documentation in a legal manner and accept inspections.
A virtual office has been a legal way of establishing a business headquarters for years. However, it is necessary to take into account the legal requirements that must be met in order for a virtual office to legally fulfill its function.
First of all, to use a virtual office, it is necessary to conclude an agreement with the property manager (usually its owner, but it can be anyone authorized to dispose of it, holding the so-called legal title to the premises) conducting legal business activity consisting in the provision of virtual office services. Usually, this will be a lease agreement with a template in the form of virtual office regulations attached pursuant to art. 384-385 of the Civil Code, to which each user of the virtual office will have to comply. This agreement should include a provision under which the property manager (in the case of a lease agreement: the lessor) consents to the establishment of a registered office of business on the property and an address for correspondence for the entrepreneur.
As for the requirement for the property owner to give consent to conduct business activity in it, it results from the provisions of the real estate law and applies not only to virtual offices, but also to traditional offices organized on a property that is not owned by the entrepreneur. In turn, as for the requirement to establish a delivery address for the entrepreneur in the virtual office, this requirement is confirmed by the thesis from the judgment of the Supreme Administrative Court of 2 August 2022, file reference III FSK 5107/21: “(…) The Supreme Administrative Court (…) expresses the view that the registered office address of a taxpayer who is not a natural person, referred to in Art. 5 sec. 3 of the Tax Code, may be premises provided by another entity, including one offering office services (“virtual office”), provided that the use of the premises results from an agreement ensuring at least the receipt of correspondence coming to the taxpayer”[1]. It is also indicated that a virtual office should provide the possibility of holding meetings with contractors or meetings of the entrepreneur’s bodies, as indicated by the thesis of the judgment of the Provincial Administrative Court in Warsaw of 5 July 2018, file reference Act III SA/Wa 2582/17: “the mere circumstance of using the services of companies offering the possibility of using premises (owned by them or subject to a lease agreement) for the purposes of conducting business activity, in such a way that a given entity may indicate a given address as the address of its registered office and all correspondence may be sent to this address, and in addition, this entity may use these premises after prior reservation, e.g. for the purpose of holding management board meetings or meetings with contractors, does not mean that the address provided by this entity is not the address of its registered office[2].”
The entities that can legally provide virtual office services are determined by the Act of 1 March 2018 on Counteracting Money Laundering and Terrorist Financing (Journal of Laws of 2023, item 1124, as amended; hereinafter referred to as the AML Act). Entrepreneurs providing virtual office services under Art. 2 item 16 letter c) of the AML Act are among the entities required to comply with the provisions of this Act. These must therefore be entities:
– registered in the Register of activities for companies or trusts kept by the Director of the Tax Administration Chamber in Katowice – which results from Article 129a of the AML Act and the provisions of the Regulation of the Minister of Finance, Funds and Regional Policy of October 25, 2021 on the appointment of a body of the National Tax Administration to perform the tasks of the body competent to keep the register of activities for companies or trusts (Journal of Laws, item 1968);
– not having been convicted of an intentional offence against the activities of state institutions and local government, against the administration of justice, against the credibility of documents, against property, against economic turnover and property interests in civil law transactions, against turnover in money and securities, an offence referred to in Art. 165a of the Act of 6 June 1997 – the Penal Code, an offence committed in order to achieve a material or personal benefit or an intentional fiscal offence (in the case of legal persons, the requirement of no criminal record applies to partners entrusted with managing the company’s affairs, persons authorized to represent the company, members of management bodies, persons in managerial positions and beneficial owners) – which results from Art. 129b of the AML Act;
– having appropriate experience confirmed by appropriate training or documented one-year work experience in the scope of activities related to activities for companies or trusts – as stipulated in Article 129c of the AML Act.
Therefore, before entering into a contract for the provision of a virtual office service, it is worth verifying the potential contractor in terms of the legality of their activities. This limits the legal risks associated with establishing a virtual office.
There are no other requirements provided for in generally applicable law for the establishment of a virtual office. Moreover, under tax regulations there is no legal basis for the tax authority to examine whether there are actual conditions on the premises of the property used as a virtual office to perform management activities or conduct business activities, which is confirmed by the case law of the Supreme Administrative Court and the Court of Justice of the European Union[3]. The judgment of the CJEU in case C-527/11 Ablessio (ECLI:EU:C:2013:168), and in particular the thesis expressed in point 27 of the justification, is of key importance here, as it indicates that it is not the taxpayer’s obligation to prove to the tax authority that the registered office of business activity declared by him has the material, technical and financial resources enabling its use.
Therefore, there are no local requirements for the organization of a virtual office. Moreover, tax authorities are not authorized to issue decisions refusing the registration of an active VAT payer based on the registered office in a virtual office based solely on reservations regarding the premises recognized as the registered office, as indicated by the thesis from the judgment of the Voivodeship Administrative Court in Lublin of 16 November 2017, file reference I SA/Lu 691/17: “the proceedings concerning registration as a VAT and VAT – EU payer cannot be treated as proceedings in which the suitability of the premises to fulfill the function corresponding to the scope of activity entered in the National Court Register is verified”. Of course, this view should not be treated as enabling the registration of an actually non-functioning virtual office, as emphasized by the further discussed judgment of the Voivodeship Administrative Court in Kraków of 25 January 2017, file reference Act I SA/Kr 1399/16 – the meaning of the cited thesis is that the tax authority cannot assess a functioning virtual office in terms of factors such as square footage, characteristics or equipment.
Importantly, it does not even have to be premises under the exclusive control of one entrepreneur and may be shared by several entities, and this alone cannot be a basis for refusing to recognise such premises as the registered office of the taxpayer, as indicated by the judgment of the Provincial Administrative Court in Kraków of 22 May 2019, file reference I SA/Kr 369/19: “In the Court’s opinion, although there can be no doubt that the place indicated in the notification as the registered office of the complaining company is in fact not under its exclusive control, because the staff of another office is there, providing the service of delivering incoming mail not only to the complaining company, but also to other entities, the second instance body did not present convincing arguments in its decision as to how the factual findings regarding the specificity of using the premises in W. and the lack of technical facilities (place of business) translate into the existence of premises allowing for an objective determination of the probability that the registration of the complaining company will be used to commit tax fraud”[4]. The judgment of the Voivodship Administrative Court in Lublin referred to in the previous paragraph speaks in the same tone: “indicating the registered office address in a premises where many entities have already been registered cannot, in itself, constitute a premise for refusing to register a VAT payer”[5].
It is worth noting, however, that if a virtual office is used for purposes other than receiving correspondence and holding business meetings, it may be necessary to comply with special regulations, as discussed in more detail later in this article.
However, before discussing selected legal and tax aspects of using a virtual office as a registered office of business activity, it is necessary to address the common problem of tax administration authorities questioning the actual conduct of business activity using a virtual office. The previously cited judgment of the CJEU in case C-527/11 Ablessio (ECLI:EU:C:2013:168) states in point 28 of the justification: “However, according to the Court’s settled case-law, Member States have a legitimate interest in taking appropriate measures to protect their financial interests, and combating tax evasion, tax avoidance and possible abuse is an objective recognised and encouraged by the Sixth Directive (see, in particular, judgments of 21 February 2006 in Case C-255/02 Halifax and Others [2006] ECR I-1609, paragraph 71; of 7 December 2010 in Case C-285/09 R. [2010] ECR I-12605, paragraph 36; and of 18 October 2012 in Case C-525/11 Mednis, not yet published in the Collection, point 31)”. Therefore, in the case of a probable possibility of tax fraud by a person applying for registration as an active VAT payer, refusal of registration is possible and justified. Polish legislation provides for such a clause in art. 96 sec. 4a sec. 1 of the Act of 11 March 2004 on the tax on goods and services (i.e. Journal of Laws of 2024, item 361; hereinafter referred to as the VAT Act). Importantly, under this provision, it is not about the tax authority proving the fact that tax fraud has occurred, but that there is a probability that it will occur – as indicated by the judgment of the Supreme Administrative Court of 11 April 2017, reference number Act I FSK 1463/15: “In order for the refusal of registration to be considered proportionate to the objective of preventing tax fraud, it must be based on serious grounds allowing an objective determination of the existence of a probability that the VAT taxpayer’s registration will be used to commit fraud. Such a decision must be based on an overall assessment of all the circumstances of the case and on evidence collected during the verification of the information provided by the entrepreneur[6].”
How do the entrepreneur’s registered office and virtual office relate to the problem of tax fraud? In this context, it is worth familiarizing yourself with the judgment of the Voivodship Administrative Court in Kraków of 25 January 2017, file reference I SA/Kr 1399/16, containing the thesis: “It is obvious that the taxpayer’s use of fictitious or false data raises doubts as to his honesty in tax settlements. There is no circumstance that would justify concealing the actual place of business from the tax authorities”[7]. In the factual situation in which the judgment was issued, the premises that were to be the entrepreneur’s registered office for tax purposes did not have staff (neither employed by the entrepreneur nor belonging to the virtual office serving him), were unable to receive correspondence, and an on-site inspection showed that the premises were inaccessible and permanently closed. Therefore, the entrepreneur’s registered office did not actually function. In the court’s opinion, this proved the inconsistency of indicating this office as the taxpayer’s registered office, and therefore the inaccuracy of the data indicated in the application for registration as an active VAT taxpayer and, consequently, the validity of the refusal to register issued by the tax authority based on art. 96 sec. 4a sec. 1 of the VAT Act. The Supreme Administrative Court upheld this decision in the judgment of the second instance of the administrative court proceedings[8]. Therefore, declaring in the application for registration as an active VAT taxpayer the actually non-functioning registered office of the entrepreneur, including the one being a virtual office, will lead to a negative decision by the tax administration.
At the same time, it should be noted that basing your business on a fully functional virtual office cannot be the basis for applying the legal instrument of Article 96, paragraph 4a, paragraph 1 of the VAT Act. This is indicated by the extensive line of case law of provincial administrative courts, which arose as a result of appeals against decisions issued by tax authorities refusing to register as an active VAT taxpayer by entrepreneurs[9]. This line of case law was largely supported by the aforementioned judgments of the Supreme Administrative Court, which were favorable to the virtual office, and the case law of the Court of Justice of the European Union, in particular the judgment in case C-527/11 Ablessio (ECLI:EU:C:2013:168).
It is therefore easy to see that, in light of the case law, the mere conduct of business activity using a virtual office should not be a basis for refusing to register an active VAT taxpayer under Article 96, paragraph 4a of the VAT Act. Only its actual non-functioning related to the inability to conduct correspondence at the virtual office address may lead to this.
Business activity with a virtual office – legal and tax aspects
A virtual office established on the principles described above may be the registered office of a business declared for tax purposes and public statistics. It may be indicated as the registered office address in the application for a Tax Identification Number based on the provisions of the Act of 13 October 1995 on the principles of recording and identifying taxpayers and payers (i.e. Journal of Laws of 2024, item 375; hereinafter referred to as the NIP Act), which is confirmed by the judgment of the Supreme Administrative Court of 5 August 2014, file reference II FSK 3549/13[10]. Similarly, it should be considered that when an entrepreneur obtains a REGON number based on the provisions of the Act of 29 June 1995 on public statistics (i.e. Journal of Laws of 2023, item 773), the registered office address of the business established in the virtual office may be used. In addition, the address of the virtual office may be provided in the Central Register and Information on Business Activity as an address for service based on the provisions of the Act of 6 March 2018 on the Central Register and Information on Business Activity and the Information Point for Entrepreneurs (consolidated text: Journal of Laws of 2022, item 541) and the registered office address indicated in the Register of Entrepreneurs maintained as part of the National Court Register under the provisions of the Act of 20 August 1997 on the National Court Register (consolidated text: Journal of Laws of 2024, item 979).
All this allows the entrepreneur using the virtual office to be registered as an active VAT payer in accordance with the provisions of the VAT Act based on the address of the virtual office.
Providing the address of the virtual office in Central Register of Business Activity or National Court Register is of particular importance from the perspective of court proceedings, because pursuant to Art. 133 § 21 of the Act of 17 November 1964 – the Code of Civil Procedure (consolidated text: Journal of Laws of 2023, item 1550, as amended; hereinafter referred to as the Code of Civil Procedure) in cases against an entrepreneur, procedural documents will be delivered to the address for service indicated in Central Register of Business Activity, and therefore to the address of the virtual office. It will be analogous to the address of the registered office indicated in the National Court Register, which results from art. 133 § 22 of the Code of Civil Procedure.
Similar in the case of tax proceedings under Art. 148 § 1 of the Act of 29 August 1997 – Tax Ordinance (Journal of Laws of 2023, item 2383, as amended; hereinafter referred to as the Tax Ordinance). If the address of the virtual office is indicated to the tax authority as the address for correspondence, in accordance with this provision, all letters in tax proceedings will be sent to this address.
When it comes to the local jurisdiction of tax authorities when using the services of a virtual office, the legal situation of entrepreneurs conducting business activity in the form of a sole proprietorship and in other forms is different. If we are talking about a sole proprietorship conducted by a natural person, this has no impact on it, because in such a case, under art. 17 § 1 of the Tax Ordinance, the local jurisdiction will be determined by the taxpayer’s place of residence. The situation is different in relation to business activity conducted by various types of legal persons or organizational units, including various types of partnerships and capital companies. In such a case, indicating a virtual office as the taxpayer’s registered office under the same provision will affect the local jurisdiction of tax authorities, and therefore, among other things, which Tax Office will have to pay taxes or submit appropriate declarations and applications.
As for other practical aspects, it should be noted that invoices issued by or on behalf of an entrepreneur conducting business using a virtual office should indicate the address of the virtual office as the registered office address of the issuer or buyer, respectively. According to art. 106 sec. 1 item 3) of the VAT Act, specifying the registered office of one of the entities indicated on the invoice, this refers to the registered office of the business, which is the virtual office in the case of using its services.
As mentioned earlier, in the case of using a virtual office for purposes other than receiving correspondence, regulatory compliance requires compliance with other, specific regulations. For example, in the case of storing accounting documentation in a virtual office, compliance of the applied solutions with the provisions of the Act of 29 September 1994 on Accounting (Journal of Laws of 2023, item 120, as amended) must be ensured, in particular Chapter 8: Data Protection. In turn, in the case of processing personal data in the office (e.g. by storing files with personal files), it will be crucial to comply with the provisions on the protection of personal data, including Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ EU. L. of 2016, No. 119, p. 1, as amended) and the Act of 10 May 2018 on the protection of personal data (consolidated text: Journal of Laws of 2019, item 1781).
Finally, it is worth pointing out a practical observation that virtual offices are often the subject of fiscal inspections carried out by tax authorities. That is why when running a business with a registered seat of business in a virtual office, you should be prepared for this and take care of the regulatory compliance of all actions taken.
Summary
A virtual office is a beneficial service for entrepreneurs that is fully compliant with the law. There are basically three legal requirements necessary to legally register a virtual office: legal title to use the property and its address as part of the virtual office based on an appropriate agreement, the ability to receive correspondence and book premises for business meetings (meetings with contractors, company board meetings, etc.) provided for in the agreement, and cooperation with a service provider operating in a manner consistent with AML regulations. If they are met, you can use the virtual office and its address as part of your business activity, as well as civil and tax proceedings. If the virtual office is intended for other activities in addition to receiving correspondence, it is of course necessary to comply with other regulations concerning, among others, the security of accounting documentation or personal data protection. So while a virtual office may raise doubts among more conservative tax administration officials, this is a fully legal and permissible solution in the light of applicable regulations and court decisions, provided that the above conditions are met.
Bibliography:
a) Legal acts:
Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation) (OJ EU L. of 2016, No. 119, p. 1, as amended);
Act of 17 November 1964 – the Code of Civil Procedure (consolidated text: Journal of Laws of 2023, item 1550, as amended);
Act of 29 September 1994 on Accounting (consolidated text: Journal of Laws of 2023, item 120, as amended);
Act of 29 June 1995 on public statistics (consolidated text: Journal of Laws of 2023, item 773);
Act of 13 October 1995 on the principles of recording and identifying taxpayers and payers (consolidated text: Journal of Laws of 2024, item 375);
Act of 20 August 1997 on the National Court Register (consolidated text: Journal of Laws of 2024, item 979);
Act of 29 August 1997 – the Tax Ordinance (consolidated text: Journal of Laws of 2023, item 2383, as amended);
Act of 11 March 2004 on the Goods and Services Tax (consolidated text: Journal of Laws of 2024, item 361);
Act of 1 March 2018 on Counteracting Money Laundering and Terrorism Financing (consolidated text: Journal of Laws of 2023, item 1124, as amended);
The Act of 6 March 2018 on the Central Register and Information on Business Activity and the Entrepreneur Information Point (consolidated text: Journal of Laws of 2022, item 541);
Act of 10 May 2018 on the Protection of Personal Data (consolidated text: Journal of Laws of 2019, item 1781);
Regulation of the Minister of Finance, Funds and Regional Policy of 25 October 2021 on appointing a body of the National Revenue Administration to perform the tasks of the body competent to maintain the register of activities for companies or trusts (Journal of Laws item 1968).
b) Case law:
Judgment of the Court of Justice of March 14, 2013, C-527/11, VALSTS IENEMUMU DIENESTS v. ABLESSIO SIA, ZOTSiS 2013, no. 3, item I-168;
Judgment of the Supreme Administrative Court of 5 August 2014, II FSK 3549/13, LEX No. 1491098;
Judgment of the Supreme Administrative Court of 11 April 2017, I FSK 1463/15, LEX No. 2296413;
Judgment of the Supreme Administrative Court of 18 April 2019, II FSK 1234/17, LEX No. 2720487;
Judgment of the Supreme Administrative Court of 2 August 2022, III FSK 5107/21, LEX No. 3443050;
Judgment of the Regional Administrative Court in Kraków of 25 January 2017, I SA/Kr 1399/16, LEX No. 2260769;
Judgment of the Regional Administrative Court in Kraków of 13 November 2019, I SA/Kr 1005/19, LEX No. 2772075;
Judgment of the Regional Administrative Court in Kraków of 22 May 2019, I SA/Kr 369/19, LEX No. 2779164;
Judgment of the Regional Administrative Court in Lublin of 16 November 2017, I SA/Lu 691/17, LEX No. 2408117;
Judgment of the Regional Administrative Court in Warsaw of 5 July 2018, III SA/Wa 2582/17.
[1]judgment of the Supreme Administrative Court of 2 August 2022, III FSK 5107/21, LEX No. 3443050.
[2]Judgment of the Regional Administrative Court in Warsaw of 5 July 2018, III SA/Wa 2582/17.
[3]see judgment of the Supreme Administrative Court of 5 August 2014, II FSK 3549/13, LEX No. 1491098; judgment of the Supreme Administrative Court of 11 April 2017, I FSK 1463/15, LEX No. 2296413; judgment of the Supreme Administrative Court of 2 August 2022, III FSK 5107/21, LEX No. 3443050; judgment of the Supreme Administrative Court of 14 March 2013, C-527/11, VALSTS IENEMUMU DIENESTS v. ABLESSIO SIA, ZOTSiS 2013, No. 3, item I-168.
[4]Judgment of the Regional Administrative Court in Kraków of 22 May 2019, I SA/Kr 369/19, LEX No. 2779164.
[5]Judgment of the Regional Administrative Court in Lublin of 16 November 2017, I SA/Lu 691/17, LEX No. 2408117.
[6]Judgment of the Supreme Administrative Court of 11 April 2017, I FSK 1463/15, LEX No. 2296413.
[7]Judgment of the Regional Administrative Court in Kraków of 25 January 2017, I SA/Kr 1399/16, LEX No. 2260769.
[8]Judgment of the Supreme Administrative Court of 18 April 2019, II FSK 1234/17, LEX No. 2720487.
[9]see judgment of the Provincial Administrative Court in Kraków of 13 November 2019, I SA/Kr 1005/19, LEX No. 2772075; judgment of the Provincial Administrative Court in Kraków of 22 May 2019, I SA/Kr 369/19, LEX No. 2779164; judgment of the Provincial Administrative Court in Lublin of 16 November 2017, I SA/Lu 691/17, LEX No. 2408117; judgment of the Regional Administrative Court in Warsaw of 5 July 2018, III SA/Wa 2582/17.
[10]Judgment of the Supreme Administrative Court of 5 August 2014, II FSK 3549/13, LEX No. 1491098.