(English) Corporate Income Tax (CIT) in Poland
Overview
The 19-per cent corporate income tax is the only corporate income tax. As a rule, the provisions of EU directives have been implemented into the Polish taxation system.
CIT rate |
19 % |
Withholding tax: |
|
dividends |
19 % |
interest |
20 % |
licence fees |
20 % |
intangible services |
20 % |
Branch profit tax |
N/A |
Corporate income tax payers include:
-
limited liability companies, joint-stock companies and other legal entities;
-
corporations in formation;
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organisational units without legal personality except for companies without legal personality;
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companies without legal personality with offices or management boards in another state, if, pursuant to the tax laws of that state, they are treated as legal entities and are subject to taxation in that state on their total income regardless of where it is earned;
-
tax capital groups.
Partnerships are not subject to CIT. Income earned by partnerships is allocated to the partners and subject to CIT at the shareholder level, together with their other earnings. Amendments to regulations are being proposed under which limited joint-stock partnerships and limited partnerships will be subject to the tax. Draft amendments are at the government consultations stage (as of May 2013).
Taxpayers with offices or management boards in Poland are subject to CIT in Poland on their total income. Taxpayers who do not have offices or management boards in Poland are subject to CIT only on income earned in Poland.
Comparison of taxation on different types of activity (branch/company):
Branch |
Company |
|
Tax |
19 % |
19 % |
Profit distribution |
No tax on branch profit distribution. |
19% WHT, with the option of an exemption or lower rate. |
Rules of taxation |
It is important to accurately allocate revenues and costs to the branch’s activity, which in practice may cause problems due to the absence of detailed provisions. |
The company is a separate taxpayer subject to CIT in accordance with general principles. |
Introducing separate accounting |
Yes |
Yes |
Other comments |
Possibility of deducting the CIT paid in Poland in the home country of the holding company. Some treaties provide for an exemption on income taxed in Poland. |
Possibility of deducting WHT paid in Poland. In the case of a parent company with its registered office in the European Union, it is typically possible for dividends to be exempt. |
The Taxable base is the difference between revenue and the costs incurred in earning it; if the difference is negative, the taxpayer declares a tax loss. In certain cases, revenue may be the taxable base.
Tax Loss
-
may be deducted from income during five subsequent tax years (“loss carry-forward system”); the deduction in a single year cannot exceed 50 per cent of the value of the loss;
-
the following losses are not taken into account: losses of businesses subject to transformation, merger, acquisition or division – in the event of a transformation of the legal form, a business merger or a division, with the exception of a transformation of a corporation into another corporation.
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Profit distribution
Dividends disbursed by corporations with offices in Poland are subject to withholding tax at the 19-per cent rate, (the tax is collected by the company making the disbursement). dividends disbursed between Polish companies, are not subject to CIT at the shareholder level.
Tax treaties stipulate a lower withholding rate for dividends (5%, 10% and 15%) if certain conditions are met (inter alia, the company disbursing the dividend should hold the shareholder’s residency certificate).
The following dividends are exempt from withholding tax:
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disbursed to companies with their registered office in Poland or another EU/EEA state or in Switzerland,
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if the shareholder has continuously and directly held at least 10 per cent (25 per cent for shareholders with offices in Switzerland) of the shares in the company disbursing the dividends for at least two years.
The 2 year shareholding period may elapse after the dividend disbursement date.
The company disbursing and the company collecting the dividend must be subject to CIT on its total income in Poland or in an EU/EEA state or in Switzerland.
In order to take advantage of the withholding tax exemption – the company disbursing the dividend should have the shareholder’s tax residency certificate, and additionally a statement by the recipient (shareholder) that it is not applying a CIT exemption to its total income, regardless of source.
The definition of dividend also applies to income earned, among other things, on a mandatory or automatic redemption of shares or a company liquidation.
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Tax on foreign earnings
Income earned by a Polish taxpayer from sources located abroad is subject to 19-per cent CIT together with income earned in Poland, unless the tax treaty states otherwise. The tax paid abroad may be deducted from Polish CIT, but the deduction cannot exceed the amount of CIT due under Polish legislation (for the part classified as foreign income).
Dividends obtained from foreign sources may be exempt from CIT in Poland:
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if they are disbursed by companies with offices in an EU or EEA state or in Switzerland
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and the Polish company has held at least 10 per cent (or 25 per cent for companies with their registered office in Switzerland) of the shares in the company disbursing the dividends for at least two years.
The 2 year period may also elapse after the dividend disbursement date.
The company disbursing and the company collecting the dividend must be subject to CIT on their total income in Poland and in the EU/EEA state or in Switzerland. Income on the liquidation of foreign legal entities is not eligible for exemption.
Dividends obtained from companies with offices in a state with which Poland has concluded a tax treaty (other than EU/EEA states or Switzerland) are subject to 19-per cent CIT. However, withholding tax paid abroad and, if other conditions are met, foreign CIT paid by a foreign subsidiary, can be deducted from Polish CIT (underlying tax credit). The deduction cannot exceed the CIT amount due under Polish law.
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Capital gains
Earnings from the sale of shares and other securities are subject to 19-per cent CIT in accordance with general principles. A tax loss in this respect is accounted for in accordance with general principles and may be used to reduce other earnings subject to CIT).
As a rule (in accordance with tax treaties) – sales of shares/securities by foreign entities are subject to taxation in the country where the seller has its registered office. Exceptions may apply if the sale concerns shares in a company whose assets comprise primarily properties located in Poland- in such a case, the profits may also be subject to taxation in Poland. The so-called “property clause” is found in agreements concluded by Poland with Austria, Belgium, Denmark, Germany and Sweden, among others.
Poland is bound by agreements without a property clause (e.g. agreement with Cyprus, the Netherlands).
As a rule, a sale of shares/securities is subject to a 1-per cent tax on civil law transactions on the market value of the instruments sold, unless it is conducted through a brokerage house or subject to VAT. The acquiring party is the taxpayer with respect to the tax on civil law transactions.
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Real estate
Earnings from the sale of real estate are subject to 19-per cent CIT in accordance with general principles.
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Restructuring efforts
Poland has implemented the directive on a common system of taxation applicable to mergers, divisions, and transfers of assets and exchanges of shares concerning companies of different Member States. Mergers, divisions and exchanges of shares concerning companies with offices in the EU may be CIT-neutral, provided that certain requirements are met (a specific degree of capital ties).
Restructuring is often conducted using partnerships or closed-end investment funds, because of its effect of consolidating performance and reducing or eliminating CIT.
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Withholding tax
Withholding tax applies to income disbursed in Poland on shares in the profits of legal entities, interest, licence fees and remuneration for intangible services.
As a rule, the rate of withholding tax on dividends is 19 per cent, but tax treaties may stipulate a lower rate (5, 10 or 15 per cent).
CIT exemption in Poland: see “Distribution of profits” and “Tax on foreign earnings: (above).
Interest and licence fees are subject to 20-per cent withholding tax in Poland, but tax treaties may stipulate a lower rate (5, 10 or 15 per cent). Some tax treaties also stipulate a 0-per cent rate on interest (e.g. those with Sweden, the United States or France).
As of 1 July 2013 (during the transitional period from 1 July 2009 to 30 June 2013 -the maximum rate of 5 per cent applies), interest and licence fees will be exempt from withholding tax in Poland if they are disbursed by a corporation with its registered office in Poland to a company with its registered office in an EU/EEA state other than Poland or in Switzerland, and if:
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the company disbursing the interest/licence fees holds a minimum of 25 per cent of the shares in the capital of the company collecting the interest/licence fees, or
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the company collecting the interest/licence fees holds a minimum of 25 per cent of the shares in the capital of the company disbursing the interest/licence fees, or
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the company subject to taxation on its total income in an EU/EEA state holds at least 25 per cent of the shares in the capital of the disbursing company and in the capital of the company collecting the interest/licence fees; and
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a minimum 25 per cent share has been held directly and continuously for at least two years – this requirement does not need to be met at the time of the disbursement of the above fees/interest.
The application of exemption is dependant on whether the Polish company has the recipient’s tax residency certificate and a statement that the recipient or the company referred to in c) is subject to CIT on its total income in its country of residence, regardless of where the income is earned, and is not taking advantage of an exemption from CIT on its total income regardless of source.
Payments for intangible services, such as advisory services, advertising, data processing, etc. are subject to 20-per cent withholding tax unless otherwise stated by tax treaties (treaties concluded between Poland as a rule do not provide for withholding tax on payments for intangible services).
The 20 per cent withholding tax exemption in Poland is conditional upon the disbursing entity holding the recipient’s tax residency certificate.
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Tax-deductible costs and depreciation
Tax-deductible costs are costs incurred to earn or maintain or secure a source of revenue that are not excluded by statute from the tax-deductible cost category. Taxpayers must docuent the costs incurred. Tax costs also include expenditures for discontinued investments. The legislation contains a list of more than 60 items that are not regarded as costs for tax purposes. These include, inter alia, accrued but unpaid interest, business entertainment costs (i.e. essentially costs of meeting contractors), administrative penalties and interest on overdue statutory payments, as a rule provisions established in accordance with accounting principles, car wear and tear allowances or car insurance premiums in the portion of the car value that exceeds the equivalent of EUR 20,000. Expenditures for the purchase of fixed assets and intangible assets do not constitute costs either, but depreciation write-downs made in accordance with applicable laws.
As of 2012, an expenditure may not be considered to be a tax cost (including depreciation write-down) if the cost invoice was not settled within deadlines as prescribed by the tax legislation (60 and 90 days), regardless of the payment due date stemming from the contractor agreement.
Interest
As a rule, the tax cost at the time of payment (cash method) – other than for accounting purposes where the rule is to allocate interest to costs at the time of accrual (accrual method). Exceptions include interest accrued until the date of handover of an asset for use.
Exchange rate differences
may be accounted for at the time they are incurred (tax method) or at the time of their accrual (accounting method). If the accounting method is selected, it applies for at least three tax years. Exceptions include exchange rate differences accrued until the date of handover of an asset for use.
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Depreciation
As a rule, depreciation write-downs are based on the cost of acquisition or manufacturing of the depreciated asset. The legislation stipulates the following depreciation methods:
-
linear method (as a rule);
-
Reducing balance depreciation method – means higher costs in the initial depreciation period (applicable to some components: boilers and power generation machinery, basic and specialised machinery, devices and equipment, technical devices, movables and equipment and vehicles other than cars);
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one-off depreciation (for assets under PLN 3,500);
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custom rates (applicable to used or improved fixed assets, for example a non-residential building in use for more than five years may be depreciated over forty years minus the full number of years elapsed from the date of its initial handover for use until the date of entering it in the fixed asset and intangible asset register kept by the taxpayer, but the depreciation period cannot be shorter than ten years).
For assets depreciated using the linear method, the rate may be decreased in a given tax year by no more than the rate prescribed by tax legislation.
In the case of a transformation, division, merger, in-kind contribution including a business or its organised part, buyers of fixed assets and intangible assets must carry on using the depreciation methods applied by the seller.
Depreciation does not apply to:
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and and the right of perpetual usufruct of land;
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expenditures incurred to purchase them are a tax cost at the time of their paid disposal (sale).
Depreciation rates and periods for tax purposes may differ from depreciation for accounting purposes.
Examples of depreciation rates and methods for selected assets
Linear method |
Reducing balance method |
|||
Type of fixed asset |
Depreciation period |
Annual depreciation rate (%) |
Depreciation period |
Annual depreciation rate (%) |
Car – PLN 50,000 |
60 months |
20% (PLN 10,000) |
n/a |
|
Truck – PLN 100,000 |
60 months |
20% (PLN 20,000) |
30 months |
40% (PLN 40,000 in the first year) |
Computer – PLN 5,000 |
3 years |
30% (PLN 1,500) |
18 months |
60% (PLN 3,000 in the first year) |
Construction equipment – PLN 1,000,000 |
60 months |
20% (PLN 200,000) |
30 months |
40% (PLN 400,000 in the first year) |
Office building – PLN 10,000,000 |
40 years |
2.5% (PLN 250,000) |
n/a |
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Leases
Income from leases is subject to 19-per cent CIT in accordance with general principles. Tax laws set out in detail two types of leases: operating leases and financial leases. Leased objects may include fixed assets, intangible assets and land (or the right of perpetual usufruct of land). Lease settlement for tax purposes may be different than for accounting purposes.
For both types of leases, upon contract termination, ownership may be transferred to the beneficiary. Since it is possible to enter the entire lease payment under tax costs, operating leases may be more favourable in terms of tax.
Major differences between operating leases and financial leases:
Operating leases |
Financial leases |
|
Lease payments |
Lease payments, in their entirety, are a cost for the beneficiary and revenue for the financing party. |
Lease payments are a cost for the beneficiary and revenue for the financing party only in the interest portion. |
Depreciation |
The financing party effects depreciation. |
The beneficiary effects depreciation. |
Term |
At least 40 per cent of the statutory depreciation period (or at least 5 years for real properties). |
Fixed term – no minimum or maximum. |
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Thin capitalisation
As a rule, interest on loans constitutes a cost at the time of payment. However, interest on loans extended to the company by certain affiliates is not a tax cost if the following requirements are met (thin capitalisation rules):
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a loan is granted by: shareholder(s) holding at least 25 per cent of the shares in the company receiving the loans, or by a sister company (i.e. a company in which at least 25 per cent of the shares are held by a company holding also at least 25 per cent of the shares in the company receiving the loan), and
-
the debt of the company receiving the loan towards the shareholders holding at least 25 per cent of the shares in its capital and entities holding at least 25 per cent of the shares in those shareholders (and towards the sister company if the loan was extended by a sister company) exceeds three times the value of its share capital.
Share in the capital is determined on the basis of votes held;
Interest on the portion of the loan that exceeds three times the value of the share capital of the company receiving the loan (debt to equity ratio – 3:1) is not treated as a cost. Interest constitutes a tax cost in the portion not exceeding that threshold. The value of debt is calculated as on the date of payment of interest.
The broad definition of a loan for the purpose of thin capitalisation, a loan is also understood as, among other things, bonds and deposits; also, the value of the share capital is calculated in accordance with special rules.
As a rule, loan agreements are subject to 2-per cent tax on civil law transactions.
Examples of civil law transaction tax exemptions for loans
-
loans extended to a corporation by its (shareholders);
-
loans extended by foreign companies conducting lending activity;
-
loans that are eligible for VAT exemptions (as financial intermediation services).
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Tax capital groups (PGK)
It is possible to consolidate results for tax purposes within a PGK. However, due to the stringent requirements of the applicable laws, capital groups are not a popular means of consolidation for tax purposes in Poland.
Some of the requirements for establishing a capital group are as follows:
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having a registered office (for companies that belong to a group in Poland);
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average capital of each group company of PLN 1,000,000 (approximately EUR 250,000; assuming that 1 EUR = 4 PLN);
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minimum share in subsidiaries by the parent company – 95 per cent;
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group companies do not take advantage of income tax exemptions under other acts (the use of an exemption due to activity conducted within a SEZ – does not preclude from establishing a PGK);
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minimum share of income in the revenue of the tax group – 3 per cent;
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specific requirements regarding the form and wording of the agreement;
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minimum term of the agreement – 3 years;
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no option to expand the agreement to include other companies (and other restrictions).
Partnerships
Conducting business via partnerships may be an alternative to tax groups. Income earned by partnerships is allocated to the partners and subject to CIT at the partner level, together with their other earnings. There are no additional administrative requirements such as those applicable to tax capital groups.
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Tax exemptions and credits
Legislation provides for a number of CIT exemptions, both subjective and objective. For instance, investment funds, pension funds, public service organisations, church organisations and special economic zone companies are exempt from tax upon meeting appropriate requirements. Furthermore, CIT does not apply to agricultural business, with the exception of income from special departments of agricultural production.
Funds
The income of Polish investment funds is exempt from CIT. The same applies to funds investing in real estate. Moreover, foreign investment funds may also be exempt from CIT if they meet the requirements set forth in the CIT Act.
Special Economic Zones (SEZs)
Companies operating in SEZs may typically be exempt from CIT. The rate of exemption depends on the region/province, and currently ranges from 30 per cent to 50 per cent of:
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investment costs incurred during the completion of an investment in the SEZ, or
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the sum of two-year employment costs for newly-created jobs.
A CIT exemption is available if the taxpayer:
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obtains a business permit for activity in the SEZ;
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incurs eligible expenses after the date of obtaining the permit;
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incurs eligible expenses for a new investment;
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shall not transfer the ownership of the assets subject to capital expenditures during three or five years (depending on whether the taxpayer is a large, medium-sized or small enterprise) from the date of entry in the register of fixed assets and intangible assets;
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will conduct business for no less than three or five years (depending on whether the taxpayer is a large, medium-sized or small enterprise).
As a rule, SEZ business permits are issued for manufacturing activity. However, in most SEZs, it is also possible to provide the following services: accounting, other than tax returns, bookkeeping, call centres, IT services, technical surveys and analyses, research services.
The exemption applies solely to the company’s activity within the SEZ.
Companies operating in SEZs may also take advantage of property tax exemptions.
Returns/filing requirements
As a rule, the tax year covers twelve consecutive months, but in the course of business, taxpayers may modify the tax year pattern adopted.
Returns/CIT withholdings
No requirement to file returns. CIT withholdings must be paid by the 20th of every month.
Annual tax return CIT-8 is filed by the end of the third month after the end of each tax year. The CIT set forth in the annual return must also be paid by the above deadline. Due to their nature, intangible services must be documented in detail. Tax authorities pay special attention to this matter; an agreement on the provision of such services itself is not sufficient proof in this regard.
Other tax-deductible costs must also be documented.
Source http://www.paiz.gov.pl/polish_law/taxation/cit