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Transformation of a Sole Proprietorship into a Single-Member LLC and VAT Proportion – Is Adjustment Required?

  • Writer: Paweł Gorzelec
    Paweł Gorzelec
  • Sep 12
  • 2 min read

Many entrepreneurs choose to transform their sole proprietorship into a single-member limited liability company (LLC). This step provides numerous benefits, such as limiting the owner’s liability and creating better conditions for business expansion. However, one practical question arises: does the VAT deduction proportion need to be recalculated after the transformation?


The answer is: no, it does not.

General VAT deduction rules

VAT deduction requires assigning expenses to a specific type of sale:

  • purchases linked to taxable sales – VAT can be fully deducted,

  • purchases linked to exempt sales – VAT cannot be deducted,

  • mixed-use purchases – deduction is only partial.

In short: VAT is deductible only to the extent that the purchased goods or services are used for taxable activities.

VAT deduction based on proportion

When separation is not possible, the taxpayer applies the proportion defined in Article 90 of the VAT Act, calculated as the share of taxable turnover in the total turnover. This proportion is established annually, based on the previous year’s figures.


The proportion is calculated as the share of turnover from taxable activities in the total turnover of the entrepreneur. As a rule, it is determined on the basis of data from the previous year.


It is important to remember the specific regulations:

  • the proportion is rounded up,

  • certain transactions, e.g. the sale of fixed assets, are not included in the turnover,

  • in the absence of data from the previous year, an estimated proportion is applied.

Tax interpretation – no obligation to change proportion

In its ruling of 18 July 2025 (0114-KDIP4-2.4012.302.2025.4.AA), the Director of the National Tax Information confirmed that converting a sole proprietorship into a single-member LLC does not trigger the obligation to recalculate VAT proportion.


Why? Because the company established as a result of the transformation continues the entrepreneur’s business and assumes their tax rights – including the right to deduct VAT based on the proportion previously determined.

Tax succession

The reason is tax succession – the LLC continues the same business activity and inherits the tax rights of the sole proprietor, including the right to deduct VAT according to the already established proportion.


Legal basis:


 
 
 

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