TAX ALERT: CIT 2020

1. Bad debt relief

The introduction of provisions regarding the bad debt relief on January 2020, similarly to the solutions already binding for VAT, should be helpful to entrepreneurs whose contractors do not cover their liabilities on time. This solution concerns for instance the statutory definition of maximum periods for payment (30 or 60 days) and the possibility to withdraw from a contract when the period for payment exceeds 120 days. The regulations enable the creditor, whose payment is not covered within 90 days after the period for payment expires, to reduce the tax base by the amount of the debt.

The debtor shall therefore be required to add the amount of unpaid debt to the tax base. Once the liability is covered by the debtor, they will be entitled to make a reverse correction to the settlement for the period in which the liability was paid.

In order to claim the relief, all the following conditions must be met:

• as of the last day of the month preceding the submission of a tax return, no restructuring proceedings, bankruptcy proceedings or winding up proceedings are pending against the debtor;
• the period of 2 years from issuing an invoice (bill) or concluding a contract documenting the debt has not ended, counting from the end of the calendar year in which the invoice (bill) was issued or the contract was concluded;
• the creditor and the debtor are subject to unlimited tax obligation in Poland.

2. Profits retained in the company

The changes with regard to making additional capital contributions or retaining profits in companies will contribute to reducing their income only from 2020.

According to the new Article 15cb of the CIT Act: “In a company, tax deductible expenses shall also include an amount corresponding to the product of the reference rate of the National Bank of Poland applicable on the last working day of the year preceding the fiscal year increased by 1 percentage point and the amount of:

1. an additional capital contribution made to the company in accordance with the procedure and the rules set out in separate regulations or
2. any profit contributed to the company’s reserve capital or supplementary capital.”

These regulations shall be applicable to limited liability companies and limited joint-stock companies, and the decision enabling expense deduction shall be made by their partners or shareholders.

Adding this new kind of expense to the list of tax deductible expenses is a form of incentive for the partners to finance the companies internally. It may be done through additional contributions or lack of dividends and retaining the profit in the company. In such cases, the company has the right to deduct tax deductible expenses, even though it does not bear the responsibility for the cost itself. The expense is “virtual” and does not have an economic counterpart in the form of an actual cost.

3. Small CIT payer

Although from January 2020, the limit of the small taxpayer, enabling to benefit from the reduced 9% CIT rate, rises to 2 MEUR of revenue, in order to take advantage of this preference, the following two conditions must be fulfilled:

• revenue of the taxpayer in the current year (2020) cannot exceed 1.2 MEUR (Article 19, section 1, subsection 2 of the CIT Act);
• the revenue of the taxpayer in the previous year (2019) did not exceed 2 MEUR, as this it the condition to have the small taxpayer status (Article 19, section 1d in relation to Article 4a, subsection 10 of the CIT Act).

4. Deferment of the application of regulations regarding withholding tax

The Regulation of the Minister of Finance amending the Regulation dated 31^st December 2018 on the exclusion or limitation of use of Article 26, section 2e of the Polish CIT Act, was published on 30^th December 2019.

The above Article which has been deferred refers to a new withholding tax procedure concerning the payments for the benefit of one contracting party, which exceed the limit of PLN 2 million during a tax year. The new procedure, deferred until 30^th June 2020, imposes an obligation to collect withholding tax from payments exceeding the above limit and gives a possibility to have it later refunded upon the tax remitter’s or taxpayer’s request.

This regulation will apply if the taxpayer fulfils the conditions allowing to apply a lower withholding tax rate, withholding tax exemption or non-collection of withholding tax, arising from an appropriate double taxation treaty.

The above-mentioned document does not influence the provisions regarding withholding tax procedure which entered into force on 1^st January 2019, i.e. the obligation to verify a counterparty in terms of exercising due diligence, to analyse the status of a taxpayer acting as beneficial owner or the changes concerning the scope of penal and fiscal liability of a taxpayer/tax remitter.

The Regulation of the Minister of Finance defers the application of a new WHT mechanism until 30^th June 2020.