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Podatki z Galt Tax: Tax relief for ‘bad debts’ – what is it and how to deal with it?


When issuing a VAT invoice to a contractor, we must pay both VAT tax and income tax from this invoice. Cumulatively, both these taxes are more than one third of the gross amount. If debtor did not pay the invoice on time, we would not receive payment for our goods or services. Additionally we have to pay taxes to the tax office. Situation like this can end up with financial liquidity troubles. In this situation we can be able to use the so-called tax relief for bad debts.


We can collect VAT for an outstanding invoice after 150 days from the invoice payment date. We may deduct the VAT amount to be paid to the tax office by VAT from the unpaid invoice in the month, in which the deadline expires. We do not have to correct any VAT return. In addition, data of unreliable debtor are sent to the tax office, what can motivate the debtor to pay invoice and increase our chances of getting payment.

If we forgot to collect VAT in the month which 150 days have expired, the right to relief for us is not lost. However we have to correct VAT return for the month which 150 days have expired.

We have to meet a few conditions if we want use the VAT relief, i.e.: the debtor at the time we use the VAT relief cannot be bankrupt or restructured, a debtor must be active VAT taxpayer, we could not transfer against payment our receivables, etc. Unfortunately some of these conditions are not so obvious or simple to verify.

How Galt Tax can help:

  1. investigate whether you can take advantage of the bad debt relief and from which your invoices;
  2. prepare your VAT return with relief for bad debts;
  3. prepare a correction of the VAT return, if for any reason you did not use VAT relief, although you were entitled to do it.


We can also collect paid income tax for outstanding invoice. It is possible when the receivable is included in tax revenue and its irrecoverability of debt had been substantiated.

Irrecoverability of debt is considered to be substantiated inter alia when :

  • we demonstrate that a debtor is bankrupt or in the restructuring process (completely different from one of the conditions for VAT tax relief, where bankruptcy or restructuring of a debtor prevent the creditor from taking advantage of the relief);
  • a debtor dispute our claim before the court;
  • claim was confirmed by a valid court decision and directed to the way of execution proceedings.

How Galt Tax can help:

  1. analyze which of your receivables you can collect income tax;
  2. verify if the non-collectible receivables has been effectively substantiated;
  3. calculate the tax possible to collect and define when outstanding invoices can be counted as tax expenses.

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