Company Formation, Europe, International, Poland, Taxation

The CIT is the tax levied on corporate income. The standard CIT rate is 19%.

The reduced CIT rate of 9% can be applied for income, other than capital gains, if the taxpayer:

• is a small taxpayer (i.e. taxpayer whose value of sales revenue, including the amount of VAT due, did not exceed the amount corresponding to the PLN equivalent of 2 million euros (EUR) in the previous fiscal year) or
• started its business activity, provided the establishment of the company was not a result of transformation or merger (in the first tax year).

The lower rate does not apply to tax capital groups nor companies created as a result of certain restructuring operations (mergers, contribution of a going concern, etc.).

Polish tax residents are subject to tax on their worldwide income, unless there is an applicable double tax treaty (DTT) in place between Poland and the relevant country that provides that the foreign income shall be exempt from taxation in Poland. Non-residents are taxed only on their Polish-sourced income. DTTs concluded by Poland may result in specific income being not taxable in Poland, irrespective of its source.

There is a separation of income/loss sourced from capital transactions (capital gains) from other income/loss sources (also referred to as income/loss from operational activities). Revenues and costs related to each ‘basket’ are disclosed separately. There is no possibility to set-off income derived from one ‘basket’ with loss borne in the other ‘basket’. Income in both baskets is taxed at 19% CIT. Apart from share/capital transactions, the capital basket includes royalties, license fees, and similar rights.

Polish companies with foreign participation may be set up as either limited liability companies, joint-stock companies, simple joint-stock companies, limited partnerships, or joint-stock limited partnerships. There is no limitation on the percentage of foreign participation. The above-mentioned types are subject to the general CIT rules, including the standard 19% tax rate (and other rates, depending on the type of revenue sourced in Poland). The same rate applies to branches of foreign companies.

Certain entities are explicitly excluded from the group of taxpayers under the CIT law (e.g. Treasury, National Bank of Poland). Polish and EU/EEA-based investment funds are also exempted on the grounds of such provisions.

Revenues resulting from the receipt of dividends or other payments from participation in the profits of legal persons are subject to WHT in Poland.

Minimum income tax

Minimum income tax is a new tax obligation that is applicable to taxpayers declaring tax losses or negligible income (≤ 2% of revenue).

The regulations are postponed until the end of 2023. As a result, the minimum tax will be applicable from 1 January 2024, and the first payment will occur in 2025.

The minimum income tax rate is 10%. 

The tax base is to be the sum of the following:

• 5% of operational revenues (other than from capital gains), plus
• ’excessive‘ debt financing costs paid to related entities (generally debt financing costs exceeding 30% of the so-called ‘tax EBITDA’), plus
• costs of intangible services or royalties paid to related entities exceeding PLN 3 million plus 5% of the so-called ‘tax EBITDA’.

It is possible to choose an alternative method of determining the tax base amounting to 3% of the value of revenues other than from capital gains in the tax year.

The provisions provide for a list of reductions from the tax base (e.g. the amounts of donations or R&D relief, for prototypes and robotisation, SEZ/PIZ revenue, the value of expenses included in the tax year as deductible costs resulting from the acquisition, production, or improvement of fixed assets, including through depreciation).

The minimum income tax will not apply, inter alia, to financial enterprises, start-ups, entities whose profitability in any of three prior years was no less than 2%, and taxpayers who recorded over 30% decrease in revenues.

The amount of the minimum tax paid for a given tax year may be deducted from the due CIT calculated using the traditional method for the consecutive three tax years immediately following the year for which the taxpayer has paid the minimum income tax.

Exit tax

The concept of exit tax exists in Poland and assumes a taxation of unrealised capital gains in the case of transfer of assets, change of tax residence (including cross-border transformation, which may be interpreted as cross-border mergers), or change of taxpayer’s PE outside the territory of Poland. The exit tax rate is established at 19%. The tax base is the surplus of the market value of assets, with respect to which Poland would lose taxing rights, over their tax value. Under certain conditions, taxpayers may be able to apply for payment in instalments for a period not exceeding five years.

Optional tax rules (so-called ‘Estonian CIT’)

From 2021, a new, optional, and autonomous system of taxation of companies was introduced into the Polish legal system, commonly referred to as ‘Estonian CIT’. In this model, the tax is paid only when the income is distributed (e.g. in the form of a dividend). In 2022, the Polish Deal introduced important amendments with regard to the scope and application of the lump-sum scheme of Estonian CIT.

The scheme is addressed to entities operating as joint-stock companies, limited liability companies, limited partnerships, or limited joint-stock partnerships that meet the following criteria:

• The shareholders are exclusively natural persons.
• The company has no shares in other entities.
• The company employs, apart from the shareholders, at least three employees on the basis of an employment contract (or at least three persons engaged on the basis of other contracts, provided that it incurs monthly salary expenditures in the amount of at least three times the average monthly salary).
• Passive revenue does not exceed 50% of all company revenues obtained from its activities in the previous tax year, calculated including the amount of VAT due.

The lump-sum tax on income is accrued at the moment of the distribution of profit and in a different amount than the standard CIT. For small taxpayers and for taxpayers starting business activity on these principles, it is 10% of the tax base. In the case of other taxpayers, it is 20% of the tax base. 

Considering the tax due from shareholders on profit distribution (at 19%) and special mechanism of reduction of PIT liability, the effective tax rate (i.e. combined CIT and PIT taxation) for Estonian CIT, assuming it is applied by the taxpayer for four tax years, is approximately:

• 20.83% for non-small taxpayers (taxed at a rate of 20%), and
• 18.18% for small taxpayers (taxed at a rate of 10%).

The deadline for paying the lump-sum tax has been extended to the end of the third month of the tax year following the year in which the profit was distributed (i.e. a resolution was adopted on the division or coverage of the net financial result or the net profit income was distributed).

Diverted profits tax

In 2022, the new provisions regarding ’diverted profits tax‘ were introduced (as part of the Polish Deal reform programme). The Act of 7 October 2022 amending, among others, the CIT Act (Polish Deal 3.0) also introduced further changes to the provision on diverted profits that apply as of 1 January 2023. Some of the introduced changes were defined as clarifying ones. As a result, it seems reasonable to consider the impact of the amendments not only on future but also on settlements for the tax year 2022.

This tax can be imposed at 19% on ’diverted profits‘ understood as certain qualified costs (e.g. intangible services, royalties, debt financing cost, or payments for transfer of functions, assets, or risks) incurred, directly or indirectly, for the benefit of non-resident related entities and treated as tax-deductible by the Polish taxpayer, provided that:

• on the side of the payment recipient, such qualified costs constitute not less than 50% of the revenue obtained by that related entity
• the income tax paid by the recipient, with regard to a specific type of income of this entity from one of the individual titles listed in qualified costs list (e.g. income from interest, consulting services, or royalties), for the year in which it received the due amount from the Polish company is lower than 14.25% (¾ of the standard Polish CIT rate of 19%), and
• a related entity must transfer an adequate amount of profits received from the taxpayer and its related entities to another entity (in the form of expenses deductible for tax purposes or distribution of profits).

Diverted profits tax is payable if the sum of qualified costs incurred in a tax year towards related entities constitutes not less than 3% of the sum of tax-deductible costs incurred in that year in any form. 

The burden of proving that a given expense does not meet the definition of diverted profit will rest on all Polish taxpayers making payments to foreign related entities.

As a ’safe harbour‘ mechanism, the ’diverted profits tax‘ should not apply if the above costs are incurred for the benefit of a related entity subject to taxation on its worldwide income in the EU/EEA (assuming that this entity conducts a genuine and material business activity).

Minimum tax on buildings

Minimum tax on buildings is a special type of tax on ’deemed‘ taxpayer’s income from buildings, i.e. initial value of the taxpayer’s buildings, decreased by PLN 10 million.

The basic principles regarding minimum tax on buildings are as follows:

• It is calculated separately from the ’regular‘ CIT.
• Currently, all types of commercial buildings subject to lease/tenancy (including hotels) fall within its scope.
• It is payable on a monthly basis at the rate of 0.035% (which roughly translates to the rate of 0.42% per annum).
• It may be set-off against ’regular‘ CIT liability. Therefore, in practice, minimum tax on buildings results in additional tax burden only if: (i) no regular CIT is paid by the taxpayer or (ii) the taxpayer’s regular CIT is lower than the minimum tax on buildings.
• If this minimum tax is higher than the ’regular‘ CIT, the excess may be refunded by the tax office provided that no irregularities in regular CIT are identified in the course of a special proceeding initiated by the taxpayer.

Local income taxes

There are no provincial or local income taxes in Poland.