As of January 1, 2022, significant changes concerning the Polish tax system called the Polish New Deal came into force. These amendments also include Corporate Income Tax [CIT].
Below we present the most important changes with respect to CIT.
- Changes in withholding tax
The major changes concern:
- Implementation of pay and refund mechanism (mechanism introduced in 2019 and suspended until the end of 2021) as the basic mechanism of WHT settlements (instead of relief at source) for payments exceeding PLN 2,000,000 annually to a single taxpayer being a related entity,
- Changes in the pay and refund mechanism (comparing to suspended previous provisions in this respect) – i.e. a narrower scope of payments subject to this mechanism concerning only passive receivables, i.e. interest, royalties, and dividends. Payments for intangible services were excluded from this regime,
- Accepted use of a copy of a certificate of tax residency if the information in this copy does not raise any justified doubts about the background.
2. Minimum Corporate Income Tax
Subject to minimum CIT are taxpayers of CIT who are Polish tax residents (including tax groups), as well as taxpayers operating through a permanent establishment located in Poland (with respect to revenues and costs assigned to this the establishment), if in the tax year:
- The taxpayer incurred a loss from operational (other) activities source (i.e. not from capital gains), or
- The taxpayer reported the taxable profit from operational (other) activities source (excluding revenues from capital gains) in the tax revenues from this activity, in the proportion not exceeding 1% of the tax revenues.
The tax rate of minimum CIT is 10% of the tax base calculated in line with the manner indicated in the Polish CIT Act, including
(i) amount of 4% of the value of revenues from operational (other) activities (and not revenues from capital gains) achieved by the taxpayer in the tax year plus
(ii) amount of costs of debt financing towards related entities in the part in which these costs exceeds 30% of Tax EBITDA calculated in line with the formula indicated in the Polish CIT Act plus
(iii) the value of deferred tax resulting from the disclosure of non-depreciable intangible assets (e.g. goodwill or trademark) in tax settlements to the extent to which it results in an increase in gross profit or a decrease in gross loss plus
(iv) the cost of fees for the so-called intangible services (e.g. advisory services, market research, advertising services, management and control, data processing, insurance, guarantees and sureties and similar benefits) and certain property rights incurred directly or indirectly for related entities or tax havens residents, in the part in which these costs in total exceed in the tax year by PLN 3,000,000 the amount calculated according to the formula indicated in the Polish CIT Act.
The deadline for minimum CIT payment is equal to the deadline for annual CIT reporting and CIT payment (last day of the third month following the ended tax year).
The minimum CIT is decreased by the amount of CIT calculated in line with general rules – i.e. there is no double taxation of the same profit with minimum CIT and standard CIT. The minimum CIT not deducted in a given tax year may be deducted in the next three years.
3. Liquidation of the tax-deductibility limitations of costs of intangible services
Starting from January 1, 2022, the provisions limiting the tax-deductibility of costs of intangible services purchased from related entities (limit of article 15e of Polish CIT Act) are no longer in force.
In consequence, as a rule, the taxpayers will not be obliged to calculate the limit at the end of the tax year. Instead, for some taxpayers obligation to calculate the so-called tax on "shifted income" may arise (please see point 4). Further, to some extent, the costs of intangible services purchased from related entities are included in the tax base for the calculation of the Minimum CIT (please see point 2).
4. Tax on “shifted income”
The mechanism of the tax on "shifted income" provides for 19% CIT taxation of the tax-deductible costs incurred by the Polish taxpayer for related entities for specific services/fees, provided that the conditions set out in the CIT Act are met by the Polish taxpayer and the recipient of the payment.
A shifted income could be classified into categories of costs incurred directly or indirectly for related entities (related entities in the meaning of the Polish CIT Act), e.g.
(i) costs of advisory services, market research, advertising services, management and control, data processing, insurance, guarantees and sureties, and services of a similar nature;
(ii) all kinds of fees and charges for the use or the right to use copyrights or related property rights, licenses, rights specified in the Industrial Property Law, know-how;
(iii) fees for transferring the risk of the debtor's insolvency due to loans other than those granted by banks and credit unions, including liabilities resulting from derivative financial instruments and benefits of a similar nature,
(iv) costs of debt financing costs related to obtaining funds and using these funds, in particular interest, fees, commissions, bonuses, the interest part of the leasing instalment, penalties and fees for delay in payment of liabilities, and costs of securing liabilities, including costs of derivative financial instruments;
(v) fees and remuneration for transferring functions, assets, or risks.
Mentioned above categories of costs can qualify as "shifted income" if the sum of these costs incurred in the tax year for entities, including unrelated entities, constitutes at least 3% of the sum of the tax-deductible costs incurred in this year in any form (limit of tax-deductibility of costs of debt financing shall not apply in the calculation).
5. Other changes
Please note that starting from January 1, 2022, also the following changes to Polish CIT were implemented:
1) Changes in the methodology of calculating the limit of costs of debt financing (PLN 3,000,000 or 30% Tax EBITDA (depending on the more favourable option),
2) Favourable changes in “Estonian CIT”,
3) Limitations in tax depreciation of real estate,
4) Changes in the definition of entities having its place of management in Poland,
5) Implementation of an s-called “Polish Holding Company”.