Polish minimum corporate income tax (CIT) regulations will come into effect from January 1 2024. This 10% minimum tax will be applicable to companies with Polish tax residency and domestic tax capital groups if, during the tax year:
They incurred a loss from a source of income other than capital gains; or
Their non-capital gains profit was lower than 2% of their total income from sources other than capital gains.
The law includes a guideline for determining a loss for minimum tax purposes, meaning that an accounting loss might not always lead to minimum taxation.
The tax result shall be adjusted by, among others, depreciation write-offs, leasing costs, and 20% of employment costs. These items should be excluded from the calculation of the tax result for minimum tax purposes. Consequently, after reducing the costs by these expenses, the taxpayer's income will increase. If the tax profit calculated after these inclusions results in a profitability higher than 2%, then the minimum tax will not apply.
But if the company is still in the red, it will have to calculate a tax basis for minimum income tax.
The basic and simplified calculation methods
Every taxpayer subject to the minimum tax will be obliged to determine the tax base, for which the regulations provide two methods:
The basic method; and
The simplified method.
The choice of method depends solely on the taxpayer's decision; therefore, it is recommended that it be preceded by calculations using both methods.
The tax base determined according to the basic rules consists of the equivalent sum of:
An amount corresponding to 1.5% of the revenues earned by the taxpayer from sources other than capital gains;
A related parties debt financing cost exceeding 30% of tax EBITDA; and
Expenses due to (directly or indirectly) related or unrelated entities with management or headquarters in countries considered as tax havens for the acquisition of intangible services, rights to use intangible assets, and the transfer of insolvency risk exceeding by PLN 3 million 5% of the tax value of EBITDA.
The sum of the aforementioned will constitute the minimum tax base under the basic method.
The tax base determined according to the simplified method is the equivalent of 3% of the revenues earned by the taxpayer from sources other than capital gains.
Timing of payment and offsetting
The minimum tax shall be paid once a year, at the time of submitting an annual tax return. There is no obligation to pay minimum tax advances.
It is possible to offset the minimum tax against the CIT paid under general rules, which is beneficial for taxpayers with profits from capital activities and losses from operational activities. Once paid, the minimum tax can be deducted from the CIT paid under general rules in the following three tax years. Therefore, if one year does not go as planned, there is no loss – the minimum tax paid once will reduce the obligation to the tax authorities in subsequent years.
Sector-specific issues
The minimum tax could create a burden for companies operating in industries characterised by low profitability or occasional losses. These sectors include:
Hotels, restaurants, and cafés;
Transportation;
Real estate;
Industrial;
Processing;
Wholesale and retail trade; and
Construction.
Final thoughts
It is crucial to note that tax simulations conducted in 2022 when the regulations were issued might not align with the updated rules applicable from January 1 2024. Amendments have been made to the calculation of losses and profitability levels. Additionally, the list of entities exempt from minimum taxation has been expanded.
Taxpayers that have a tax year different from the calendar year will begin applying these minimum tax provisions from the tax year commencing after December 31 2023.
