Poland has introduced a series of changes to income taxes from January 1 2019, cutting the corporate income tax (CIT) rate for small business and IP box cases, while addressing key areas of concern including the withholding tax (WHT) rate, exit tax, and the status of trusts and family-owned companies as controlled foreign companies.
In an effort to stimulate small businesses, the CIT rate has been cut from 19% to 9% for companies with revenues of up to €1.2 million ($1.4 million), as well as for companies starting business activity in 2019.
In the realm of withholding tax, it will be possible to apply for a WHT exemption or reduced rate if a taxpayer pays a recipient less than approximately €500,000 a year. From July 1 2019, if a taxpayer makes payments (subject to WHT) to a given contractor exceeding approximately €500,000 annually, it will be required to collect the withholding tax at a standard WHT rate from the surplus over the limit. The taxpayer (in some cases a tax remitter) will be entitled to apply for an applicable refund.
If a taxpayer pays a supplier more than approximately €500,000 annually, the reduced WHT rate can be applied, provided that the entity making the payment issues a statement confirming the possession of documents affirming the lower rate and the verification of the contractor. It will also be possible to obtain a special ruling from tax authorities on the possibility to apply a WHT exemption or reduced rate to payments to a specified contractor.
In the realm of exit tax, individuals or companies will be subject to the tax in some situations if they transfer their assets from Poland to another country, or simply move out of Poland. The tax rate will be 19% of the tax base. In certain cases, a lower tax rate of 3% will apply only to individuals.
The tax base is calculated as the sum of income from unrealised profits established for each particular asset. In the case of individuals, the surplus of assets over PLN 4 million ($1.1 million). For individuals earning profits exceeding approximately €250,000 annually, they will be required to pay an additional 4% tax (a so-called solidarity tax).
A 5% income tax will apply to profits from specific intellectual property (IP) rights, which are subject to legal protection (IP box). Trusts, family foundations and other entities with a trust character will be treated as a controlled foreign company.
From 2020, a notional interest deduction (NID) can be included in tax costs in two following situations: (1) a retention of profit in the company, or (2) when a company receives additional payments from a shareholder. The maximum limit of a NID is approximately €60,000 a tax year.
There will also be a participation exemption for alternative investment companies (AIC) from CIT on profits from the sale of shares (stocks), if the AIC had (directly before the disposal date for a continuous period of two years) had no less than 10% of shares in the capital of the company of which the shares are sold. The exemption does not apply to the disposal of shares in real estate companies. A one-off tax loss deduction is possible a year for approximately €1.2 million.
Finally, insurance indemnity will be exempt from income tax, but only if it will be used to reconstruct damaged fixed assets (excluding passenger cars) by refurbishing, purchasing, or producing them in-house within that tax year.