The Polish government has approved amendments to the Polish CIT act (Polish Corporate Income Tax). The primary objective of the changes is to modify the Corporate Income Tax (CIT) rules and eliminate ambiguity in interpretation.
The significant changes of the draft amendment to the Polish CIT Act include the following:
- Amendment and postponement of the entry into force of the minimum income tax rules
- Amendment of the regulations on foreign-controlled companies (CFC)
- Amendment to the rules on taxation of flipped income
- Modifications to withholding tax (WHT)
- Amendment of the regulations on debt financing costs
- Amendment to the polish holding company (PSH)
- Amendment to the rules on flat-rate taxation of company profits
- Amendment of the rule on the process for the refund of tax on income from buildings
- Amendment of the rules on the documentation obligation regarding haven transactions.
The Amendments in Poland
Amendment and suspension regarding the minimum tax income
The proposed amendments submit that the minimum income tax rules will be suspended for one year. They would only start to apply from 2023. In addition, the legislator anticipates changes in the construction of the tax itself, especially:
- The profitability index will be increased from 1% to 2% and at the same time, the method for its calculation will be changed.
- Various new types of payments are excluded for the purpose of the profitability ratio calculation.
- An option is now proposed to select between two alternative formulas to calculate the minimum tax basis (in both cases the tax rate is 10%).
- Exemptions are authorized for new types of entities, e.g., small taxpayers, entities that yield the majority of their revenue from regulated medical services, or taxpayers whose profitability in at least one of the previous three tax years surpassed 2%.
Amendments to regulations on foreign-controlled corporations (CFCs)
The new draft submits changes to CFC regulations, which may be appropriate to Polish tax residents who own or control foreign entities. It is planned to introduce the following:
- A means to exclude double taxation in the situation of cascading dividends in multi-level holding structures. This means will consist of reducing the tax on income from the parent CFC by the related portion of the tax on the income of the subsidiary CFC.
- A change in the premise of high profitability of the foreign entity in reference to its assets as the previous regulations caused interpretation issues.
- The new draft also illustrates the definition of a subsidiary.
The amendments to the rules on taxation of flipped income
The purpose of the proposed solutions is to abolish the doubts raised by the business community among other things:
- Clarification that the applicable entity for which the costs are incurred does not have its registered office or central administration in Poland
- Clarification of the condition concerning 50% of the dividend generated by a related entity and the condition concerning the transfer of revenue to another entity.
- Simplification of the condition pertaining to preferential taxation in the country of residence, management, registration, or location of the applicable party.
Amendments On withholding tax (WHT)
The main changes to the WHT pay-and-refund regime are by extending the validity of a management board statement until the end of a provided tax year (presently up to three months) and mitigating deadlines associated with the management board statement.
Amendments concerning limitations of debt financing costs
A detailed indication that the higher of PLN3m or 30% of tax earnings before interest, taxes, depreciation, and amortization (EBITDA) should be applied as a maximum threshold.
Exception from non-deductibility of related party financing costs affiliated to so-called capital transactions for instance, for acquisitions of shares of unrelated entities or debt financing approved by banks seated in the European Union or the European Economic Area.
Amendments to the polish holding company (PSH)
Changes in the Polish Holding Company include the following:
- an increase of the dividend WHT exemption to 100% (currently 95%)
- easing of some of the conditions required to benefit from the regime.
- Introduction of a new definition of a domestic subsidiary and foreign subsidiary.
The purpose of all these changes is to enable more entities than before to benefit from holding exemptions.
Amendments to the laws on flat-rate taxation of company revenues
Changes are also envisaged in the provisions on flat-rate corporate income, generally known as Estonian CIT. The legislator intends to:
- Modify the way income from non-business expenses is determined when assets are used for business and other non-business purposes
- Modify the deadline for filing a notice of election to tax companies’ income on a flat rate basis.
- Illustrate the condition for extinguishing a tax liability for a preliminary adjustment.
- Amend the deadline for payment of the tax due on the income from the transformation.
- Amend the deadline for the payment of a flat rate on distributed profit income and income from profit to cover losses and a flat rate on distributed net profit income.
Amendment of the rule on the process for the refund of tax on income from buildings
The new draft includes a plan to simplify the method for refunds of tax on income from buildings, by not exacting an obligation to issue a tax refund decision in the absence of doubts about the amount of the refund.
Amendment on the rules on the documentation obligation in respect of “haven transactions”
The new draft raises the documentation limit for direct and indirect tax haven transactions, which will make fewer taxpayers needed to prepare documentation.
- For direct transactions, the limit increases from PLN 100,000 to PLN 200,000.
- For indirect transactions, the main materiality limit remains at PLN 500,000, but for financial and commodity transactions it will be PLN 2.5 million.
- There is also a further emphasis on the role of the statement as sufficient to verify the documentation obligation
Most of the changes proposed in the draft legislation are to come into force as of 1 January 2023.
Due to the broad scope of the new law, companies should evaluate current and anticipated investments in Poland and in order to model the probable impacts of the law.
For additional information respecting this new Polish deal or help regarding your investment or if you want to setup a company in Poland, lets go ahead and contact your Damalion expert now.
