Poland: Interest rates cut followed by tax modifications

Higher rates in future transactions will not be executable. Higher interest rates agreed in the past are also limited to 7.2% per annum. Agreements governed by foreign (non-Polish) law are subject to the same rule, if the agreement relates to Poland. 

Interest exceeding the maximum can still be paid. The statutory maximum does not mean that the debtor is not allowed to pay more, but if he does, the excessive interest will not be tax deductible. On the other hand, the creditor will be taxed on the full amount of the interest received. In cross-border transactions, the reduced treaty rates will not apply to the excess above the statutory maximum. 

From January 2020, the ‘anti-bad debt’ income tax measurements apply. 

Micro, small and medium enterprises (MSME) have to be paid by large enterprises in 30 days. In symmetric relation, different deadlines can be agreed to the extent that this is not grossly unfair to the creditor. The debtor, other than MSME, has to inform other party to the transaction that he is not MSME. Failure to do so means that they can be punished with high fines. 

Tax deducted liabilities that are outstanding for more than 90 days from the maturity date are no longer deductible and have to be included in taxable income of the debtor. 

The creditor, on the other hand, is allowed to decrease the income by the value of such overdue receivables. The debtor is obliged to adjust the income, the creditor has an option. This applies to transactions carried out within creditor and debtor business that are subject to income tax in Poland. 

The ‘bad debt’ adjustment is to be completed on an ongoing basis (i.e. during the tax year) and has an impact on advanced income tax payments. The annual income tax settlement has to include detailed information on overdue payments that adjust income, including the name and tax ID of the debtor. 

The situation of debtors has slightly changed due to the COVID-19 pandemic. At present, debtors that suffer from COVID-19’s negative economic consequences, and have reported an income fall of 50% or more when compared to the similar period of previous year, are not obliged to convert outstanding liabilities into taxable income as described above. 

The income tax ‘anti-bad debt’ measurements do not apply to related party transactions. Related debtors will not have to increase their income if they do not pay related contractors within 90 days from the maturity. On the other hand, related creditors will not be allowed to decrease their income by the value of overdue liabilities.

Income tax ‘anti-bad debt’ adjustment is accompanied by similar measurements in VAT although the latter also applies to related party transactions. Input VAT deducted on payments outstanding for more than 90 days becomes non-recoverable for the debtor. Relevant adjustment is required. 

At the same time, the creditor is allowed to reduce the output VAT basis by the amount of 90 days overdue receivables. Both adjustments are not retrospective and are to be done in ongoing VAT settlements. The pandemic has little influence on these VAT rules. 

T: +48 22 322 68 88

E: bartosz.glowacki@mddp.pl