The end of 2020 brought a lot of changes in income taxation in Poland. Most of the changes came into force on 1 January 2021.
“Estonian” Corporate Income Tax (CIT) – a new form of lump sum income taxation
As of 1 January 2021, corporate income taxpayers have the opportunity to opt for the lump sum taxation on income of capital companies, laboriously referred to as “Estonian CIT”. The tax settlement is based on accounting data meaning that the tax base equates in principle with the balance sheet profit. Only the distribution of profit to shareholders is to be taxed. Although, this category also includes so-called hidden profits or expenses for the benefit of shareholders.
This method of taxation is an alternative choice for companies with revenues of up to PLN100 million per year and is only available to limited liability companies and joint-stock companies.
What does the choice of a flat rate on income entail? The moment of switching to the flat-rate income tax means that it is necessary to include in the income and tax costs (of the year preceding the first year of flat-rate taxation) on a number of items previously recognised only for accounting purposes. The taxpayer loosens the possibility to account for tax losses incurred in the years prior to the flat-rate settlement. Certain investment expenditures and minimum employment are required.
Taxation of limited partnerships
From 1 January 2021, limited partnerships (and certain general partnerships) have been subject to CIT. The income of a limited partnership is subject to taxation at a rate of 19% or at a rate of 9%, provided that the conditions for benefiting from the lower CIT rate are met.
On the other hand, for partners of a limited partnership, revenue generated by the limited partnership falls into the category of revenue from participation in the profits of legal persons and, as a rule, is subject to taxation at a flat rate of 19%. Certain exemptions from taxation are provided for partners of a limited partnership. For example, a general partner may deduct from the calculated tax an amount corresponding to the product of the general partner’s percentage share in the partnership’s profit and the tax due on the partnership’s income. On the other hand, a limited partner may disclose an exempt amount constituting 50% of the revenue from participation in profits in a limited partnership, not more than PLN60,000 in a tax year, separately for each partnership in which he is a limited partner. The above exemption is not applicable to a limited partner associated with a general partner or his shareholder.
Taxation of real estate companies
Another novelty in the tax regulations is the definition of an entity called a real estate company. This is a company, in which at least 50% of the value of assets are directly or indirectly real estate located in the territory of the Republic of Poland or rights to such real estate, and at the same time this value exceeds PLN10 million. In addition, at least 60% of the total revenue in such a company is to come from lease and similar contracts or from the sale of real estate or shares from other real estate companies.
If shares in a real estate company are sold and the seller is not a Polish resident, the company is required to pay 19% tax on the profits from the transaction. In the absence of information on the value of the transaction, the company is required to pay 19% on the market value of its shares.
If the real estate company does not have its registered office or management in Poland, it is required to appoint a tax representative. Failure to fulfil this obligation will result in a penalty of up to PLN1 million. The real estate company and its direct and indirect shareholders have additional reporting obligations.
Publication of tax strategy
The largest taxpayers are defined as entities exceeding EUR50 million in revenue or forming a so-called tax capital group (PGK) are obliged to publish information on their tax strategy on their websites. The following information is to be included:
- The approach to the processes and procedures concerning the management of tax obligations and tax compliance.
- The number and type of information provided on tax schemes (MDR).
- Related party transactions exceeding 5% of total assets.
- Settlements in countries applying harmful tax competition.
- Restructuring activities planned or undertaken by the taxpayer.
- Requests made for tax interpretations, binding rate information or binding excise information.
Failure to comply with the guidelines may result in a sanction of up to PLN250,000. Information on tax strategy should be published within 12 months after the end of the tax year.
Restriction on accounting for tax losses
A restriction on the accounting for tax losses by an income taxpayer has been introduced where the taxpayer has acquired another entity or a business, or an organised part of a business, and as a result of these transactions:
1. The taxpayer’s business, in whole or in part, is different from the principal activity carried on before such acquisition or takeover, or;
2. At least 25% of the shares of the taxpayer are held by an entity or entities which did not hold such rights at the end of the tax year in which the loss was incurred.
Limit of revenues authorising small taxpayers to apply the 9% CIT rate
From 1 January 2021, the amount of EUR2 million is the limit that allows the application of the 9% CIT rate. The previous value was EUR1.2 million, applicable for small taxpayers.
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Date: February 2021