Bad debt relief in VAT and PIT/CIT: how to recover tax on unpaid invoices

An unpaid invoice is two problems at once. You do not have the money from the business partner, and at the same time you have already paid tax on it: VAT (in the return for the month of issue) and PIT/CIT (on the revenue counted into the period). The Polish tax system solves this double blow with a tool called the bad debt relief, a mechanism that lets you recover tax paid earlier on receivables that the debtor ultimately did not pay.

The relief works in parallel in two taxes: VAT (Article 89a of the VAT Act) and income tax (Article 26i of the PIT Act, Article 18f of the CIT Act). In both cases the basic condition is the same: 90 days after the payment deadline without payment. The differences concern the procedure, the documentation and the detailed conditions.

Bad debt relief in VAT

Legal basis

Article 89a of the VAT Act: the creditor’s right to reduce output tax. Article 89b: the debtor’s obligation to reduce input tax (the mirror image).

Conditions (Article 89a(2))

You can use it if all of the following apply:

1. The receivable has been unpaid for at least 90 days after the payment deadline
2. On the date of the correction (in the JPK_V7) you are registered as an active VAT taxpayer
3. The business partner was an active VAT taxpayer on the date the invoice was issued
4. 3 years have not passed since the invoice was issued (counted from the end of the year of issue)
5. The receivable has not previously been written off, settled or sold

Exclusions

You cannot use it if:

• The business partner is in bankruptcy, restructuring or liquidation
• You are a related entity to the business partner (by capital, personally, within the family)
• The business partner is a public authority
• The transaction concerned an export or an intra-Community supply of goods (WDT) (these are already outside Polish VAT)

How to correct: the procedure

1. Determine the date of the 90-day period (an invoice of 15 January 2026, payment deadline 14 February 2026, 90 days = 15 May 2026)
2. In the month the 90 days expire, correct the JPK_V7: enter the amount of output VAT to be reduced
3. Do not send information to the business partner (the law has no longer required this since 2021)
4. Keep the documentation: the invoice, confirmation of the deadline, a demand for payment

Example: an invoice of PLN 10,000 net + PLN 2,300 VAT (PLN 12,300 gross in total). Payment deadline 14 February 2026, no payment by 15 May 2026. In the JPK_V7 for May 2026 you reduce output tax by PLN 2,300. This is a real saving: you pay less VAT to the tax office.

Bad debt relief in PIT/CIT

Legal basis

• PIT: Article 26i of the PIT Act
• CIT: Article 18f of the CIT Act

Conditions

You can reduce the tax base (income) by the value of the receivable if:

1. The receivable has been unpaid for at least 90 days after the payment deadline
2. The receivable was previously counted as accrued revenue (that is, it has already gone into your income)
3. The debtor is not in bankruptcy, restructuring or liquidation
4. 2 years have not passed since the invoice was issued
5. A commercial transaction within the meaning of the Act on counteracting excessive delays (B2B)

Exclusions

• Receivables from related entities (capital > 25%)
• A receivable sold to another company (factoring) loses the right to the relief
• Time-barred receivables

Procedure

The creditor (you):

1. In the annual return PIT-36 / PIT-36L / CIT-8 you enter a reduction of the tax base by the net value of the receivable
2. In addition, in the monthly or quarterly advances during the year, you also reduce the advance by the proportional PIT/CIT
3. You document the receivable (the invoice, the payment deadline, non-payment)

The debtor (the business partner):

1. Has an OBLIGATION to increase the tax base by the same amount
2. In the annual return and the advances, regardless of whether you use the relief

Example

You issued an invoice for PLN 50,000 net in March 2026. The payment deadline is 30 April 2026. No payment by 29 July 2026 (90 days). In the advance for July you reduce income by PLN 50,000. At the 19% flat tax: a PIT saving of PLN 9,500.

Reversal: what if the debtor pays

In VAT

When the business partner pays after the VAT has been corrected:

• In the period of payment you increase output VAT by the amount previously reduced
• Proportionally for a part payment
• In accounting terms: the same as for the original invoice

In PIT/CIT

When the business partner pays after the income has been corrected:

• In the month of payment you increase income to be taxed by the amount previously reduced
• In the monthly advance the effect shows at once
• In the annual return you take the increase into account in the attachment PIT/B or CIT-8/O

Common mistakes

Mistake 1: no documentation of the deadline

The relief requires you to prove that 90 days have passed since the payment deadline. If the invoice has no deadline, the tax office by default assumes “payment on issue”, and you cannot use the relief (the deadline passed on the same day as the issue, so a month later there is no “90-day delay”, because the invoice is already “late”).

Solution: always set a payment deadline, in the contract, on the invoice, in the email containing the invoice.

Mistake 2: selling the receivable to a factor

If you sell the receivable to a factoring or debt collection company, you lose the right to the relief, because the receivable has already been “sold” (the exclusion condition of Article 89a(2)(5) is met).

Solution: if you are considering factoring or an assignment, use the relief before the assignment (if 90 days have already passed). Only then sell the receivable.

Mistake 3: no distinction between gross and net

• In VAT you reduce output tax by the full amount of VAT on the invoice
• In PIT/CIT you reduce income by the net value (not gross), as VAT does not enter income

Mistake 4: relief without counting into revenue

For the PIT/CIT relief you must have previously counted the receivable into accrued revenue. If you use the cash method (lump-sum tax for some items) or for some reason did not count the invoice into revenue, the relief does not apply.

The scale of savings: a real example

An IT company, year 2025, turnover PLN 2,000,000 net, unpaid invoices at the end of the year totalling PLN 150,000 net (all after 90 days without payment).

VAT

PLN 150,000 × 23% = PLN 34,500 of VAT. Relief = a reduction of output tax by PLN 34,500.

PIT (19% flat tax)

PLN 150,000 × 19% = PLN 28,500 of PIT savings.

Total

PLN 63,000 saved in tax thanks to the bad debt relief. Of course if the business partner pays in the following year, you reverse the corrections. But in the meantime you have the cash flow back in your pocket.

Documentation: what to keep

For a tax office inspection and possible verification you must keep (for 5 years):

1. The original invoice: with the issue date and the payment deadline
2. Proof of delivery of the invoice: a registered letter, an email with confirmation
3. A demand for payment (although it is not formally required after 2021)
4. The 90-day calculation: working out the cut-off date
5. A record of the correction in the JPK_V7 and in the PIT/CIT advance
6. If payment is made: proof of receipt (a bank statement) and the reversal of the correction

Relief vs factoring: alternatives

| Option | Financial effect | Effect on the balance sheet | Deadline requirement | |-------|------------------|-----------------|---------------| | Bad debt relief VAT + PIT | Lower tax | None (paper) | 90 days after the deadline | | Factoring sale (assignment) | Quick cash (60–90% of the value) | Removal from receivables | Immediately | | Bailiff enforcement | The full amount (after 1–2 years) | None | After a court judgment | | Write-down | Reduction of revenue | Reduction of receivables | A management board decision |

In practice the bad debt relief is a complement, not an alternative. You use it regardless of whether you plan further steps (court, factoring). The only limitation: you cannot use the relief after selling the receivable.

Summary

The bad debt relief in VAT and PIT/CIT is one of the most underrated mechanisms in the Polish tax system. After 90 days from the payment deadline you have the right to recover tax paid earlier on an unpaid invoice, without a court, without debt collection, at no cost. At Profais, as part of full accounting and the revenue and expense ledger (KPiR) service, we record the relief in the JPK_V7 and the PIT advances when you tell us about overdue payments – informing the firm about them is your responsibility. If you have unpaid invoices older than 90 days and have not used the relief, contact us and we will verify your right to a retrospective correction.

Sources: VAT Act Articles 89a, 89b, PIT Act Article 26i, CIT Act Article 18f, podatki.gov.pl, the Act of 8 March 2013 on counteracting excessive delays.