Administration
Companies are required to submit an annual ‘self-assessment’ return within 3 months of the tax year end. The annual CIT liability should be settled within the same period.
As a rule, CIT is payable in monthly instalments by 20th day of each month for the preceding month. Monthly instalments are calculated based on year-to-date financial data beginning from the first month of the tax year. Small taxpayers, i.e. companies, whose gross sales revenue including output Value Added Tax in the previous tax year was less than EUR 1,200,000 may pay in quarterly instalments. Quarterly method of CIT settlement may be also applied by companies starting business activity, but only in their first tax year. In the following periods they would have to pay CIT monthly, unless they are small taxpayers. Additionally, provided certain conditions are met, taxpayers may apply simplified method of CIT payment, i.e. equal to 1/12 of due CIT stated in a tax return from the previous tax year. If no due CIT was revealed, taxpayers may pay monthly instalments equal to 1/12 of due tax resulting from a tax return submitted in a tax year preceding the current tax year by two years.
Penalties may be charged for failure to notify the tax authority of an annual liability to CIT within 3 months after the tax year end and for late filing of a tax return. Penalties may also be imposed if tax is outstanding.
Filing
The majority of tax declarations, tax information and tax returns (including CIT-8, IFT-2) have to be submitted via electronic communication.
This means that each entity that hires over 5 employees is obliged to submit tax declarations and tax information (among others CIT-8, IFT-2) via electronic communication.
Documents submitted electronically have to be labelled with an electronic signature verified with a valid “qualified certificate”. In order to obtain so-called “electronic signature” it is necessary to submit an application one of the subjects authorized to grant certificates and to fulfill the formal requirements essential to confirm an identity of the person who apply for the issuance of the signature.
Tax base
The tax base is the overall income, being the difference between aggregated taxable revenues and aggregated tax deductible costs.
The tax base generally includes all sources of income (with certain exemptions). There is no special treatment for income such as interest or capital gains.
The starting point is in accordance with generally accepted accounting principles, with certain statutory adjustments. Some of the most common adjustments are:
- representation and entertainment expenses,
- depreciation write-offs from cars, which value exceeds EUR 20,000 in the part exceeding this value,
- tax penalties and budget interest,
- donations,
- income taxes paid in Poland and abroad,
- expenses not incurred with the purpose of generating or securing taxable revenues,
- unpaid interest,
- accruals,
- unrealized foreign exchange gains and losses.
Thin capitalization
Beginning from 2015, new rules of thin capitalization restriction were introduced. In line with the new versions of the existing rule ‘thin capitalization’ restrictions apply to loans granted by a much broader group of related parties, also to indirectly related parties.
The proposed rules changed the limit of interest recognized as tax deductible due to the fact that instead of 3:1 debt-to-share capital ratio, now the ‘thin capitalization’ limit is 1:1 but with respect to debt vs equity (not share capital).
Withholding Tax
The general withholding (“WHT”) rate for dividends is 19%.
Payments made by Polish residents to foreign entities (non-residents) as a consideration for intangible supplies (such as consulting or management services) are subject to 20% WHT rate. The same WHT rate is applicable to interest and royalties paid to non-residents.
Based on the Polish CIT Law, WHT rates may be avoided in respect to dividends, royalties and interest if the payments are made to parent or sister company.
These WHT rates may also be reduced (in respect to dividends) or avoided (in respect to intangible services) by specific provisions of Double Tax Treaties concluded by Poland and the respective countries in which beneficiaries of the payments are based, if certain minimal administrative formalities are completed. Also, dividends, royalties and interest paid by Polish residents to numerous European countries receive special beneficial treatment based on regulations which implement various EU directives.
Losses
Tax losses may be carried forward and utilized over five consecutive tax years, however, in any particular year may be deducted no more than 50% of a loss.
Thus, the minimum period in which tax loss carried forward may be utilized is two years.
Transfer Pricing
Transactions between related parties should be conducted in accordance with the arm’s-length principle.
The tax authority may increase the taxable base if the pricing used between related parties differs from that which would have occurred between unrelated parties in a similar business transaction and if the difference results in income being shifted from a Polish taxpayer to another entity (whether a Polish resident or not). Similar rules apply to transactions between Polish residents and the residents of tax haven countries.
The Polish transfer pricing regulations (including CIT Law) provide for specific detailed requirements for statutory transfer pricing documentation. As of 2017, new requirements in this respect will be applicable*. Those requirements are generally in line with the three-tier approach adopted by the OECD, however there are also some country specific requirements.
* One obligation, i.e. Country-by-country reporting will have to be fulfilled also for 2016.
