The draft law of the year amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts, referred to as the Polish Order, which, after taking into account some of the comments made during the consultation process, was referred in its new version on 8 September 2021 for the first reading at the session of the Sejm, is expected to introduce many tax changes. In the present article we will focus on selected CIT issues.
Minimum income tax
According to the justification of the draft law, the introduction of this levy to the Polish legal system is aimed at limiting optimisation activities that could result in reducing tax liabilities by understating the income.
The tax is to be imposed on all CIT taxpayers (including non-resident entities, conducting their business activity through a permanent establishment located in Poland) and tax capital groups (PGK).
The above-mentioned entities will be obliged to pay the tax if in a given tax year:
- they incur a loss related to the source of income other than capital gains, or
- they achieve a share of income (other than from capital gains) in the revenue (other than from capital gains) of not more than 1%.
According to the assumptions of the draft law, this tax is to amount to 10% of the tax base, however, if the taxpayer pays a regular annual CIT in accordance with Article 19 of the CIT Act, the minimum income tax will be deductible from it.
The tax base, in turn, will be the sum of the amounts specified in the Act, which may be:
- amount corresponding to 4% of the value of revenues from a source of income other than capital gains earned by the taxpayer in a given tax year;
- debt financing costs incurred for the benefit of related parties in excess of the amount calculated according to the formula indicated in the Act;
- deferred income tax that will result in an increase in gross profit or decrease in net loss,
- expenses on intangible services, among which costs of advisory services/market research/advertising services/management and control services/guarantees and warranties and services of similar nature, as well as fees and charges for the use of, or the right to use, the rights or values referred to in Article 16b par. 1.4-7 of the CIT Act (i.i.: The taxpayer is also obliged to pay fees and charges for the use of or the right to use rights or values referred to in Article 16b par. 1.4-7 of the CIT Act (e.g. copyrights or related property rights/licences), as well as costs of transferring the risk of debtor's insolvency under loans other than those extended by banks, incurred directly or indirectly to related parties or to entities from countries applying harmful tax competition, in the part exceeding PLN 3 million in a tax year.
The legislator has also provided that the minimum income tax shall apply neither to taxpayers commencing business activity - during the first 3 tax years of such activity; entities affected by a sudden drop in revenue (by at least 30% as compared to the previous year) nor to financial enterprises.
Changes in tax capital groups (PGK) operations
The bill provides for certain changes in the terms and conditions of PGK's operations, which include, among others:
- reduction of the average share capital per each company forming PGK from the current PLN 500,000 to PLN 250,000;
- lifting of the requirement of concluding the agreement on establishing PGK as a notarial deed - a written agreement will be sufficient
- possibility for the subsidiaries establishing a PGK to hold shares in the share capital of other subsidiaries forming a given PGK (currently the shares can be held only by the parent company forming a given PGK)
- lifting of the condition that PGK must achieve a share of income in revenue of at least 2% in each financial year;
- changes in the rules of expanding the PGK after registration of the agreement by the head of the tax office.
Change in depreciation rules for real estate companies
Are real estate companies these companies whose main source of revenue or income is real estate.
According to the proposed amendments to Article 15 Section 6 of the CIT Act, these companies will be able to recognize as tax deductible expenses write-offs for wear and tear of tangible and intangible assets (depreciation write-offs) in a given tax year only up to the limit set for accounting purposes and charged to the company's financial result in a given tax year.
The most important objective of the proposed amendment is to reduce the differences between the tax result and accounting result reported by entities being real estate companies in a given tax year.
Changes in the area of lump-sum taxation on corporate income (the so-called "Estonian CIT")
The Polish Order also introduces changes with respect to the lump-sum taxation of income which, since the entry into force of the provisions (as of 1 January 2021) after meeting the conditions specified by law, has been taxed on a voluntary basis only by capital companies, i.e. joint stock companies and limited liability companies.
After the changes, as of January 1, 2022, also limited partnerships and limited joint-stock partnerships will be entitled to use this form of taxation.
Moreover, in order to use this form of taxation, the draft law assumes resignation from the obligation to incur a certain category of capital expenditures (these are expenditures in the form of a fixed percentage of the initial value of fixed assets, included in groups 3-8 of the Classification of Fixed Assets).
The legislator also plans to resign from the condition concerning the upper income limit for taxpayers subject to Estonian CIT.
According to the draft, the rates of aggregate CIT taxation for small taxpayers are to be reduced from 25 per cent to 20 per cent and for large taxpayers from 30 per cent to 25 per cent.
We encourage you to follow our blog articles on the other changes that are planned under the Polish Order. Should you have any questions or concerns, do not hesitate to contact us directly.