The Polish tax system is subject to a wide range of reform impacting both international groups as well as local businesses (known as the ‘Polish Deal’) from January 2022. The adverse changes were attempted to be balanced by new reliefs. All should be prepared for new procedures, calculations and reporting obligations.
Minimum income tax
Minimum income tax is the most far-reaching 2022 change. The new tax will affect most Polish corporate payers: incurring operating tax loss or with operating profitability below 1%.
Start-ups are exempt from minimum income tax in the first three years. Companies which suffered qualifying extraordinary (30%) decline in revenue, financial and some regulated business, some transport companies, and companies owned by individuals will be exempt from minimum income tax.
The minimum tax rate is 10% of the tax base and will be deductible from the regular corporate income tax (CIT).
The tax base is the sum of:
- 4% of operating income; and
- Related party expenses such as debt financing costs (interest on loans) exceeding 30% of taxable earnings before interest, taxes, depreciation and amortisation (EBITDA) and intangible services and licence fees exceeding PLN 3 million ($756,631) and 5% of taxable EBITDA; and
- The value of deferred income tax resulting from the recognition in tax accounts of intangible assets not yet subject to depreciation to the extent that it results in an increase in gross profit or a decrease in gross loss, decreased by
- Qualifying tax allowances, for example R&D or special economic zone allowances.
Polish holding company capital gain exemption
Polish CIT payers are exempt from tax on gains from the disposal of shares in subsidiaries and in 95% exempt from CIT on dividends received from subsidiaries (the remaining 5% is taxed at 19%), if they hold at least 10% of shares in the subsidiary for at least one year generating the capital gain or dividend. The exemption applies to companies with no shareholders from tax havens and those running a genuine economic activity.
For the exemption to apply, the disposed subsidiary should not be a real estate company and does not own more than 5% of shares in the capital of another company or benefit from tax exemption in special economic zones/Polish investment zone.
So-called Estonian system – less requirements
From 2022 it will be easier to apply the deferral of CIT to the moment of distribution of dividends in companies having no subsidiaries, wholly owned by individuals. The aggregate taxation of both CIT and personal taxation may be in the range of 20–25% depending on turnover.
Flat rate tax on turnover for private entrepreneurs and some partnerships
The amendments make the flat rate taxation based on turnover even more attractive than before. Tax rates from 3% for trading, or 15%, for example, management advisory for turnover up to the equivalent of €2 million.
The reform introduces several new allowances, for example, robotics/automation, sport and culture, marketing of new products or capital expansion allowances. The allowances allow the deduction of qualifying expenditure more than once. Some of them are limited with an amount.
The standard R&D allowance deduction was also increased to 200% of the qualifying expenditure with no limit. It will also be possible to apply R&D relief to IP box profit.
Using the available allowances may significantly reduce the CIT burden, so it is highly advisable to introduce relevant activities and apply them.
The above changes, together with a set of system changes to personal income taxation, make 2022 very challenging for Polish companies, employees and entrepreneurs.
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