Through the updated regulations in November 2020, Poland has adopted a range of major changes concerning the taxation of doing business in the country.
The changes include the double taxation of some partnerships; deferral of corporate income tax (CIT) for small companies owned by individuals; an obligation to publish tax strategies by large companies; and a new model of taxation for real estate companies.
The most revolutionary amendment imposes the status of ‘corporate profits taxpayer’ on limited partnerships (spolka komandytowa) with a seat or place of management in Poland, which so far had been tax transparent.
The model will mean a double taxation, firstly on the level of the partnership’s profit, and secondly at the level of profit distribution to the partners. Limited partners will be entitled to an exemption of 50% of received distributions, but only up to approximately €15,000 ($18,159) per year per limited partnership.
Unlimited partners will be entitled to credit proportionally for the entire income tax paid by the partnership, but only within five years. Thus, the new system will differentiate the tax position of limited and unlimited partners. The above regulations enter into force on January 1 2021 but limited partnerships may decide to only apply them from May 1 2021, and continue the tax transparent treatment until the end of April 2021.
These rules will apply to general partnerships (spolka jawaa) but only if the partners are not individuals, or if the taxpayers participating in their profits are not disclosed. General partnerships with disclosed partners will still be tax transparent.
Deferral of corporate income tax
Lump sum taxation, being a sort of deferral of income tax to the moment of dividend distribution, will apply to companies which select such a system for four years. Companies will have to be owned by individuals, have an annual turnover in the preceding year of up to approximately €25 million, and cannot have participation in other entities and passive income exceeding 50% of turnover.
There are plenty of other requirements and conditions for this system to apply, including consideration of employment, and investments in new assets, among other factors. Thus, one should carefully check if the company qualifies for the tax deferral.
Other major developments
Companies with a turnover exceeding €50 million per year, and tax capital groups, will be obliged to prepare and publish strategy reports on the execution of their tax policy on their websites, within 12 months after the end of the tax year.
Real estate companies will have a series of new duties to comply with. For example, when the shareholder sells their shares, it will be the real estate company that has to pay the capital gains tax. Some real estate companies will be obliged to appoint a formal tax representative, and many will have to report information about their shareholders (where there is more than 5% participation).
Entities operating in special economic zones (SEZs) will not be entitled to change the depreciation rates for new assets.
Losses carried forward will not be possible after further reorganisations.
Transfer pricing documentation will be required when the beneficial owner of the party to the transaction is from a tax haven.
A reduced 9% CIT rate will apply to companies with a turnover of up to €2 million (increased from €1.2 million).
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