All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

A closer look at Estonian CIT in Poland

Sponsored by sponsored-firms-mddp.png
The ‘Polish Deal’ is a complex tax reform

Łukasz Kosonowski of MDDP discusses the Estonian CIT and explains who is likely to benefit the most from this new form of taxation for the corporate taxpayer.

The ‘Polish Deal’ is a complex, and probably the hugest, tax reform in Poland seen for years. It has brought significant changes to the so-called Polish ‘Estonian CIT’ –  a new form of taxation introduced to Polish tax law in 2021.

In short, the Estonian CIT allows corporate taxpayers to defer payment of corporate income tax (CIT) at the point of profit distribution, up to a few years. However, due to restrictive and unprecise regulations, only a few hundred entities have chosen it so far. However, this may change from 2022 as the new law not only reduces the list of requirements that need to be fulfiled in order to qualify for the Estonian CIT, but it is also more attractive compared to other forms of taxation. 

The effective taxation rate of income tax (both for companies and individuals – CIT and personal income tax (PIT)) may be as low as 18.1% (in case of entities whose turnover does not exceed €2 million) or 21.2% (for other entities) - most likely the lowest possible tax rate among many different forms of business taxation in Poland. This is in line with the option to defer payment of tax up to 4.5 years.

The Estonian CIT is in principle allowed for any businesses, with one exception being a financing and crediting activity. It is particularly interesting that real estate companies are also allowed to opt for it. 

The legal form is also not a problem – limited liability company, joint stock company, limited partnership or so-called ‘simple joint stock company’ (new corporate form, dedicated to new ventures and start-ups), are all eligible. 

Also, the scale of the business does not matter any longer (from 2022) – small, medium as well as large entrepreneurs will be allowed to choose this taxation model. In addition, the Polish Deal also brings another awaited change – starting from 2022, the requirement to incur investments expenditure will be removed.

So, where is the catch? In fact, there are not many – but one of the most important things is to fulfil the so-called ‘simple capital structure’ criteria. This means in practice that a company may be entitled to the Estonian CIT only if its direct shareholders are individuals (not companies or other entities) and at the same time the company does not have any subsidiaries. 

This certainly limits the number of eligible entities, but apart from this all other requirements should be simple to fulfil. One of the requirements is related to minimal required employment – the companies applying the Estonian CIT should employ a minimum of three employees; but even this condition may be milder in case of new companies or so-called ‘small taxpayers’ (turnover below €2 million).

While the Estonian CIT is only formally allowed for Polish tax resident companies, there are no limitations for individuals who are shareholders of such companies. Thus, it should be also considered as an investment vehicle for non-Polish tax resident individuals interested in investing or doing business in Poland.

 

 

Łukasz Kosonowski

Partner, MDDP

E: lukasz.kosonowski@mddp.pl

 

More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree