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Poland: Changes to income taxes coming in 2018

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Monika M Dziedzic

In July 2017, Polish authorities published a draft of revolutionary amendments to Polish income taxes, which are expected to come into force from January 1 2018 once officially issued. The key measures are:

  • Limitation of tax deductibility of interest on debt financing (including both related and unrelated parties) to 30% of EBITDA (earnings before interest, tax, depreciation and amortisation) once they exceed a certain level per year. Current thin capitalisation regulations will be derogated after one year;

  • Limitation of tax deductibility of cost of intangible services (including, for example, accounting and marketing to 5% of EBITDA once they exceed a certain level per year. Whether the limit will apply to both related and unrelated purchases is still under discussion;

  • Separate taxation of capital gains and operating profits for those paying corporate income tax (CIT), which will mean that cost of/loss on financial/equity operations will not be deductible against operating profits any longer;

  • A minimum CIT rate of 0.5% on the initial book value of some commercial real properties (retail and service buildings like: shopping malls, office buildings);

  • Interest on profit participating loans will be taxed as dividends for the lender and will be non-tax deductible for the borrower;

  • Extension of the real estate clause (gain on disposal of shares in real estate companies to be taxed in Poland) to redemption of shares, liquidation of company, stepping out from a partnership, reduction of capital in a partnership;

  • Participation exemption, will not apply to redemption of shares on liquidation any longer;

  • Income from closed-end investment funds without redemption of certificates will be taxed as dividends (19% withholding tax in Poland unless an applicable tax treaty does not provide otherwise);

  • Income from incentive programmes based on derivatives, not resulting in the acquisition of shares, will be taxed at progressive personal income tax rates (up to 32%) instead of the 19% rate applicable to capital gains; and

  • Special flat rate tax of 8.5% (of income) of personal tax which optionally may apply to the rent of real estate will not be available to individuals with annual rent income higher than €25,000 ($30,000).

Since August 12 2017, one can make one-off tax depreciation of payments for some categories of new fixed assets up to €25,000 per year instead of depreciation over the statutory asset's lifetime.

Monika M Dziedzic (monika.dziedzic@mddp.pl)

MDDP

Tel: +48 22 322 68 88

Website: www.mddp.pl

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