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Polish Deal

The most important changes in the corporate income tax

Last updated: 04.08.2021

Dorota Wolna

Dyrektor, PwC Poland

+48 502 184 054

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Marcin Jaworski

Starszy Menedżer, PwC Poland

+48 502 184 838

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On July 26, the Ministry of Finance (MF) published a draft act amending the Act on personal income tax, the Act on corporate income tax and some other acts, which are part of the Polish Deal.

The draft includes, among others, new solutions in the field of corporate income tax (CIT), as well as modifications to the already existing mechanisms. The planned entry into force is January 1, 2022.

CIT areas to which the Ministry of Finance has proposed changes include:

1. Modification of the so-called Estonian CIT – that is, a lump sum on the income of companies.

The modifications are aimed at extending the scope of application of this solution by taxpayers and making it easier. The proposed changes include:

  • the possibility of taxation with a lump sum of limited partnerships and limited joint-stock partnerships,
  • elimination of the necessity to incur specific capital expenditures as a condition for applying the provisions on the lump sum, 
  • elimination of the upper limit of income condition (currently PLN 100 million per year).

2. Simplifying the conditions for the creation and operation of Tax Capital Groups (TCG)

The planned assumptions include:

  • Reduction of the average share capital requirement for each of the companies included in the TCG to PLN 250,000 (currently PLN 500,000).
  • Removal of the condition relating to the prohibition of links between subsidiaries being part of the TCG (currently subsidiaries cannot hold shares in the share capital of other companies forming the TCG).
  • Allowing mergers, transformations and divisions of companies within a group.
  • Elimination of the profitability condition at the level of 2% share of income in revenues (currently, the TCG should achieve a share of income in revenues of at least 2% in each tax year).
  • Opening the possibility of settling losses that the company accumulated before joining the group (currently companies that make up the TCG cannot settle losses that they accumulated before joining the Group).
  • Elimination of the requirement to conclude an agreement on establishing a TCG in the form of a notarial deed.

3. Innovation reliefs

There are plans for a comprehensive system of tax reliefs that are designed to work together. The package of incentives for entrepreneurs is to include: R&D relief, IP Box, prototype relief, relief for industrial robotization and support of innovative employees.

4. Changes in the withholding tax collection model

The scope of the “pay and refund” mechanism is to be narrowed down (including the exclusion of intangible services from the scope of the tax refund mechanism). It is also possible to obtain an opinion "on the application of preferences" also for the purposes of not collecting the tax or applying a lower rate in accordance with the DTT. The changes also apply to the payer’s declaration for the purposes of applying “relief at source” and the definition of Beneficial Owner.

5. Change in the method of calculating the limit of the so-called thin capitalization 

The draft amendment concerns the provision of Article 15c (14) of the CIT Act and indicates that the taxpayer may include as tax deductible costs the excess of debt financing costs within the limit set by the value of 30% of the EBITDA obtained in the tax year or a maximum of PLN 3 million. He may not, however, combine the two limits and apply them simultaneously. 

6. Sealing the income tax system through: 

a. changes in the provisions relating to the Controlled Foreign Company (CFC)

The prerequisites for a Controlled Foreign Company (CFC) have been clarified by indicating that a CFC is also an entity in which the Polish taxpayer holds, independently or jointly with related entities or other taxpayers having their place of residence or registered office or management board in the territory of Poland, directly or indirectly more than 50% of the share capital or more than 50% of the voting rights in the management of the entity. 

The catalogue of passive revenues was also extended to include intangible services, such as consulting, accounting and market research services. Exceeding the threshold of 33% of these revenues constitutes a CFC. 

The so-called “shell companies” having very large assets, but not generating income or generating it to a very small extent, have been added to the catalogue of entities forming a CFC.

b. introducing a new concept of the so-called income shifting into taxation

Hindering the transfer of revenues to tax havens by curtailing the practice of establishing companies abroad (e.g. in Cyprus) to which non-taxed income is transferred from Poland. Due to this change, funds sent to shell companies are to be taxed in Poland.

c. introduction of regulations limiting the generation of artificial tax-deductible costs in the form of the so-called “hidden dividend” payment

It is planned to introduce new regulations limiting the generation of artificial tax-deductible costs in the form of the payment of the so-called "hidden dividend". If it is found that the paid benefit is a hidden dividend, the value of this benefit will not constitute a tax-deductible cost for the taxpayer.

d. changes in regulations regarding the reorganization of entities, including those of a cross-border nature

The draft provides for new regulations regarding the reorganization of entities (as part of an exchange of shares, merger, division, in-kind contribution), including those of a cross-border nature, by sealing the existing regulations, i.e. ensuring tax neutrality of restructuring in the event of continuing the valuation of the restructured assets, and in the case of shares (stocks) - ensuring this neutrality for the first share exchange, merger or division.

7. Program Voluntary Disclosure

As part of the Capital Repatriation Program, the Ministry of Finance proposes to implement the Voluntary Disclosure Program in Poland - a program of bringing funds to the country that have been siphoned off by companies applying a risky tax policy.

The so-called transitional lump sum is to be a tool for the repatriation of capital to Poland. A taxpayer who discloses his risky practice to tax authorities will be able to tax the previously undisclosed income or capital with a low-rate flat-rate tax (8% transitional lump sum on income or payment of 2% tax on the value of assets unknown to the tax authorities). The income declared in this way will be exempt from additional taxation and from possible interest. The program can only be used once.

The program will not cover the effects of crimes (including fiscal crimes). Matters related to VAT will also be excluded. It will only apply to income taxes. It concerns, among others, undisclosed income, e.g. from holding shares in foreign companies, from financial instruments or real estate.

8. Depreciation in the so-called real estate companies

Excluding depreciation write-offs for buildings and residential premises from tax costs. The possibility of including as tax costs depreciation write-offs in real estate companies is to be limited to the value of depreciation made in accordance with the accounting regulations and regulations applying to the financial result in a given year.

9. New definition of the management board criterion

Clarification of the criterion of having a management board in the territory of Poland in relation to taxpayers not established in the territory of the Republic of Poland (presumption of tax residence in Poland).

10. IPO preferences, i.e. initial public offering

Companies planning to go public will be able to take advantage of the new tax relief. The relief will cover the costs of preparation, transformation of the organization, preparation of the offer, marketing activities, preparation of the prospectus, as well as notary, court, fiscal and stock exchange fees. Such expenses can be qualified as tax deductible costs in the amount of 150%.

In the case of advisory, legal and financial services that are directly related to the issue, the deduction will amount to a maximum of 50% of expenses (up to PLN 50,000 excluding VAT).

11. Consolidation relief

Introducing provisions encouraging CIT taxpayers to acquire shares or stocks in other companies. The relief consists in the possibility of deducting from the tax base an additional amount of costs incurred in connection with the acquisition of shares or stocks in an unrelated company up to the amount not exceeding the income obtained by the acquiring company in the tax year, but not more than PLN 250,000.

12. Polish Holding Company („PHC”)

The dividend received by PHC from its subsidiary is to be 95% tax exempt. The tax will only be charged on 5% of the value of the dividend paid. The aim is to encourage investors from outside the EU to invest in Poland. Companies from the European Union are also to benefit from the change - they will be able to decide whether they will benefit from a full tax exemption after two years of share ownership, or from 95% after just one year.

Additionally, full CIT exemption of profits from the sale of shares / stocks in subsidiaries is expected. Currently, if a company decides to sell its subsidiary, it pays 19% of CIT on the sale of shares.

The basic condition for benefiting from the above exemptions is holding at least 10% of shares or stocks in a subsidiary for a minimum of 1 year by the holding company.

There are many proposed changes in the field of CIT. We will follow individual solutions and areas of changes taking place in the course of the legislative process and gradually bring them closer. We invite you to follow our channels and if you have questions - contact us.

 

Contact us

Andrzej Jacek Jarosz

Andrzej Jacek Jarosz

Partner, PwC Poland

Tel: +48 502 184 608

Dorota Wolna

Dorota Wolna

Dyrektor, PwC Poland

Tel: +48 502 184 054

Maciej Nowicki

Maciej Nowicki

Dyrektor, PwC Poland

Tel: +48 519 504 568

Marcin Jaworski

Marcin Jaworski

Starszy Menedżer, PwC Poland

Tel: +48 502 184 838

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