Income and capital gains

Corporate income tax is levied at a rate of 19% (standard rate) or 9% (reduced rate for small taxpayers and new companies in the first year of business activity).

Withholding tax on cross border payments

The term “withholding tax” is used to describe income tax (both corporate and personal) withheld by remitters whose permanent establishment (place of residence, seat, or the so-called foreign establishment) is in the country in which the income arises.

20% is the withholding tax rate, is levied on income from interest, copyright or related rights, rights to inventive designs, trademarks and decorative designs, disclosing the secret of a recipe or production process, for the use or right to use an industrial device. The taxation may be diminished by application EU Directives or double taxation treaties.

19% is the withholding tax rate that covers payment of dividends, also in this case tax burden may be diminished by application of EU Directives or double taxation treaties.

From 2022, a ‘pay and refund’ mechanism (including withholding tax at standard rates of 19%/20%) has been introduced in relation to certain categories of payments to related parties exceeding PLN 2 million.

Corporate income tax – general information

Residence

Taxable income

Resident companies are taxable on their worldwide income, including capital gains. The taxable income is computed on the basis of the accounting profits and is adjusted for several items as described in the tax law. Revenues are divided into two sources – business activity and capital gains.

Tax period

Standard tax year is 12 months, it can be similar to calendar year but also may be changed. Tax advances are paid throughout the year on a monthly or quarterly basis and reconciliated annually.

Tax returns and assessment

The taxpayer has to calculate and report revenues, tax deductible costs and tax due in the annual tax return (self-assessment). The deadline for filing the return is by the end of the third month following the end of the tax year. The filing deadline cannot be extended.

Tax advancement

Tax advances should be calculated and paid by the taxpayer on a monthly basis, quarterly in the first year, or if gross sales did not exceed EUR 2,000,000 in the previous year. Basis for calculation are current taxable revenues and tax-deductible costs, the taxpayer can choose to estimate the tax on the basis of tax year preceding the previous year (current year – 2).

Deductions

Generally, expenses incurred in connection to obtaining, ensuring and maintaining taxable income are fully deductible, unless they are listed as non-deductible items. Some items are deductible only up to a limit set by the law.

Carry forward of losses

Tax losses may be carried forward up to 5 tax years. During each year the company cannot utilize more than 50% of the loss. Loss from one source (business activity/capital gains) must be utilized within the same source. It is also possible to reduce the loss by an amount not exceeding PLN 5,000,000 at a time, the amount not deducted being settled in the remaining years of the five-year period, provided that the amount of the reduction in any of those years may not exceed 50% of the amount of the loss.

Dividend payments

Dividends paid out of profits are taxed at 19% rate. However, exemptions from the EU Parent-Subsidiary Directive apply.

Minimum tax

Starting from 2024, the minimum tax comes into effect.

The minimum tax will be paid by companies, tax capital groups and permanent establishments of foreign entrepreneurs, which in the tax year:

• Incur a loss from a source of income other than from capital gains, or
• Have a share of income from a source income other than from capital gains not less than 2%.

The tax rate is 10%.and the tax base is the sum of:

• 5% of the value of the company’s income other than from capital gains (currently 4%)
• costs of debt financing exceeding the value of 30% of the so-called EBITDA
• costs of intangible services and royalties

With the alternative method, the rate is 3%. With this method, the tax base is the sum of income from the source of income other than capital gains earned by the taxpayer in the tax year.

Incentives

Special Economic Zones

Whole territory of Poland is considered as a Special Economic Zone, however, depending on the region intensity of public aid is different. General rule is that depending on the volume of investment, number of employees and additional local requirements, the taxpayer may benefit from tax exemption. Conditions are established for each taxpayer by a special agency responsible for Special Economic Zone which after application procedure issues a decision granting exemption in the particular case.

Research and Development (R&D)

Polish CIT act provides for special taxation regime encouraging investments into new technologies. Main tool is special R&D relief based on which taxpayer can additionally deduct expenses on Research and Development (R&D), including development of prototypes and pilot projects, demonstration, testing and validation of new or improved products, processes or services whose main purpose is to improve the technical Encoding Products.

The relief is available to all entrepreneurs engaged in R&D activities and allows for a deduction from the taxable base:

• 200% of personnel costs (for employees involved in research and development projects)
• 100% of other qualified costs.

Another tax benefit dedicated to the investor is so called IP BOX, according to this regulation income derived from intellectual property can be preferentially taxed with 5% tax rate.

There are also other tax benefits introduced for different economic sectors and various legal forms.

International aspects

Resident companies

Foreign income and capital gains

Resident companies are subject to tax on their worldwide income and capital gains. Taxable amount is generally calculated in the same way as in the case of domestic income.

Foreign losses – losses of foreign permanent establishment (calculated based on Polish tax rules) may be offset against domestic profits unless, on the basis of an applicable double tax treaty, the exemption method applies for double tax relief.

Dividend income paid by non-resident company

Dividends paid out of profits are taxed at tax rate of 19% unless rule implementing EU Parent-Subsidiary Directive applies.

Double taxation relief

No unilateral double taxation relief is provided. Double taxation is relieved only on the basis of tax treaties.

Non-resident companies

Taxable income

Non-resident companies are taxed only on income derived from Polish sources. They are generally taxed according to the rules applicable to residents. Income attributable to a Polish permanent establishment is generally taxed at 19% rate through a tax return (self-assessment).

Withholding tax

Generally, 19% withholding tax or tax security is levied (unless limited under a tax treaty). For interest and royalty payments EU Interest and Royalties Directive was implemented.

Dividend paid by resident companies to non-resident

Dividends paid out of profits are (unless rules implementing EU Parent-Subsidiary Directive apply) subject to a 19% final withholding tax, unless a reduced rate applies under a tax treaty.

Anti-avoidance rules

Thin capitalization

Taxpayers are required to exclude from their deductible expenses the cost of debt financing to the extent that the excess cost of debt financing exceeds either PLN 3 million or 30% of annual so-called EBITDA indicator. For its determination, an algorithm has been established:

[(P – Po) – (K – Am – Kfd)] × 30%, where:

P – summed up value of revenues from all sources subject to CIT;

Po – revenues of interest nature;

K – sum of tax-deductible costs without taking into account deductions to which one is entitled;

Am – depreciation write-offs included in the tax year to the tax deductible costs;

Kfd – debt financing costs included in the tax year to the tax deductible costs not included in the initial value of fixed assets and intangible assets, before taking into account deductions to which one is entitled.

Controlled foreign company

Companies having seat in tax heaven, or in a country with no exchange of information, are treated as controlled foreign company.

The regulation refers also to companies established abroad deriving at least 33% of passive revenues like dividends, interests, copyrights, etc. In 2022, there was an expansion of the passive revenue catalogue to include intangible services provided, such as consulting, accounting, market research, legal, advertising, management and control, data processing, employee recruitment and acquisition services, and benefits of a similar nature.

Part of CFC income attributable to Polish parent is taxable in Poland. Under certain conditions foreign company may be excluded from CFC rules.

Tax avoidance clause

From 2016 every artificial action consisting in the performance of an act primarily in order to achieve a tax advantage is defined as tax avoidance.

In case of tax avoidance, authorities may reclassify given transaction or action and establish new tax consequences. Penal consequences may be applied to the person involved in the tax avoidance.

Real estate companies

A real estate company is a company having 50 % asset‘s value consisting of real estate located on the territory of the Republic of Poland and the value of such real estate exceeded PLN 10 mil.

Real estate companies are obliged:

• to submit information on their direct and indirect shareholders
• act as an income taxpayer in case the seller of shares in this company is a non-resident and the subject of the sale are shares or stocks giving at least 5 % of votes in the company appoint a tax representative when the company is not a tax resident in the EU or in another state belonging to the European Economic Area.

Real estate companies can only recognize depreciation up to the limit set for accounting purposes.  Depreciation and amortization payments made on buildings and dwellings are excluded from tax expenses.

Report on the implementation of the tax strategy

Tax capital groups and taxpayers whose revenues exceed EUR 50 mil are obliged to prepare and publish on their website information on the tax strategy implemented for the previous tax year. This obligation must be fulfilled by the end of the twelfth month following the end of the tax year.

Limited partnership

Since January 1^st 2021. limited partnerships have lost their status of tax transparent companies and will obtain the status of CIT taxpayer. In practice, this change is tax-neutral for general partners, while the income due to limited partners will be double taxed.

Transfer pricing

At the turn of 2022, Polish transfer pricing regulations were significantly revised. Positive aspects of these changes include some simplifications for businesses, as well as the elimination of the statement on the preparation of transfer pricing documentation as a separate document. There has also been a change in the regulations on transactions with tax havens, in particular, the repeal of the regulations on indirect haven transactions and an increase in the documentation thresholds for direct haven transactions. Transfer pricing documentation requirements generally follow the recommendations of the OECD Transfer Pricing Guidelines and the EU Code of Conduct on Transfer Pricing Documentation. In some cases, country-by-country reporting is used.

You can find more information about Transfer Pricing in our eBook: Transfer Pricing Overview for Poland

Optional settlement methods

Estonian CIT

From 2021, a new system of taxation of capital companies was introduced into the Polish legal system, the so-called ‘Estonian CIT’. Estonian CIT changing the moment of tax payment. Currently, entities pay CIT on the income earned in a given tax year. In the Estonian CIT model, the tax will be paid only when the income is distributed, e.g., in the form of a dividend.

The law is addressed to capital companies that meet the following criteria:

• The scheme can be used by joint-stock companies, limited liability companies, limited partnerships, and limited joint-stock partnerships.
• The shareholders are exclusively natural persons.
• The company has no shares in other entities.
• The company employs, apart from the shareholders, at least three employees on the basis of an employment contract (or incurs monthly salary expenditures in the amount of at least three times the average monthly salary).
• Passive income does not exceed 50% operating income of all company revenues obtained from its activities in the previous tax year, calculated including the amount of VAT due.

The lump sum on income is paid of the payment of profit and in a different amount than the standard CIT. For small taxpayers and for taxpayers starting business activity on these principles, it is 10% of the tax base. In the case of other taxpayers, it is 20% of the tax base.

Small taxpayers

A small taxpayer is a taxpayer whose sales revenue (including the amount of VAT due) did not exceed EUR 2 mil in the previous tax year. Small taxpayers are entitled to preferential treatment of quarterly tax settlement, the right to apply 9% tax rate and one-off depreciation of certain fixed assets.

Tax investment fund

Taxpayers meeting the same conditions as in the Estonian CIT are entitled to create and make deductions to a special investment fund account. The made deduction may be recognized as a tax-deductible cost.

The condition for the deduction to be recognized as a tax-deductible cost is to make an investment expenditure. In practice, this solution enables immediate depreciation of fixed assets.

Holding Company

The purpose of introducing the institution of a holding company in the CIT Law is to encourage investors. The main condition for the use of this legal form will be that the holding company holds at least 10% of the shares in the subsidiary for a minimum of 2 year. The holding company should perform actual activities constituting business activity, including:

• to have staff, premises, and equipment to conduct this activity,
• function based on economic premises,
• show proportionality between the conducted activity and the resources possessed,
• enter into contracts and agreements that are economically feasible, economically justified and not manifestly contrary to the general economic interest of the entity.

The institution provides for tax preferences, such as a tax-free sale of shares and an exemption for 100% of dividends received.

VAT – rates

Standard rate: 23%, reduced rates: 8% and 5%.

Export of goods and services is zero rated.

Intra-Community supplies of goods are zero rated under certain conditions.

VAT – general information

Legislation

The VAT rules are based on the principles of the Council Directive 2006/112/EC on the Common System of Value Added Tax.

Taxable person

Legal entities and individuals that carry on an economic activity.

Taxable event

• Supply of goods and services for consideration within the territory of Poland by taxable persons acting as such
• Intra-Community acquisition of goods for consideration within the territory of Poland from another EU Member State and
• Import of goods to Poland

Taxable amount

Total consideration charged for the supply, excluding VAT but including any excise duties or other taxes and fees.

Tax period

Month or quarter (small taxpayers only).

Tax assessment

Periodical VAT returns (monthly or quarterly, by the 25^th day of the following month/quarter).

The amount of VAT liability consists of the VAT due on supply of goods and services carried out by the entrepreneur less input VAT of the same period. In addition, taxable person carrying out intra-Community supplies or supplying services according to the basic rule for B2B services has to file an EC Sales List (that shows the VAT identification numbers of his business partners and the total value of all the supplies of goods and services performed by the entrepreneur) on a monthly basis depending.

VAT registration

The threshold for mandatory VAT registration for taxable person with registered office, place of business or fixed establishment in Poland is sales turnover of PLN 200,000 attained in the period of 12 previous consecutive months.

Voluntary VAT registration is possible.  In case of intra-community acquisition of goods from another EU-Member state, the taxable person not registered for VAT has to register for VAT before the first transaction. A taxable person (not registered as a VAT payer) has to register and pay output VAT or to report the supply of service in EC Sales List if the place of delivery for that service is:

• following the Article 44 of the Directive 2006/112/EC
• located in another EU-Member state as is the EU-Member state of supplier of that service.

VAT registration is mandatory for foreign taxable persons without registered office or fixed establishment in Poland before it carries out activity which is subject to VAT in Poland and where the reverse-charge mechanism does not apply.

A foreign taxable person that makes distance-sales (mail order business) in Poland to any person that is not registered for VAT in Poland has to register for VAT in Poland before the net value of the goods reaches PLN 42,000 (EUR 10,000) in a calendar year.

VAT group registration

As of 2023, the regulations governing the formation and operation of VAT groups in Poland came into force. This new tax law institution provides for a legal form of interaction between a group of taxpayers with close financial, economic and organizational ties, which, if they choose to do so, will be merged into one new taxpayer for VAT purposes.

At the same time, all supplies of goods and services between members of the VAT group will be neutral for VAT purposes, and not as before these transactions were subject to normal documentation and settlement for VAT purposes, additionally taking into account the provisions on transactions with related parties.

On the other hand, supplies of goods and services by an entity in the VAT group to an entity outside the VAT group will be made by the VAT group. On the other hand, supplies of goods and services to an entity in the VAT group by an entity outside the VAT group will be made to the VAT group.

One-stop shop (OSS and IOSS)From 1 July 2021, an extended form of the MOSS procedure (an electronic system allowing businesses supplying to consumers (B2C) to declare and pay VAT), i.e. One Stop Shop (OSS) and Import One Stop Shop (IOSS) apply.

Under the EU’s OSS procedure, VAT due can be accounted for on:

• services supplied to consumers in Member States where the supplier is not established (B2C);
• Intra-Community distance selling of goods;
• domestic supplies facilitated by operators of electronic interfaces, recognised as suppliers.

Under the non-EU OSS procedure, it will be possible to account for VAT due on services supplied to consumers in Member States (B2C).

Under the IOSS procedure, it will be possible to account for the VAT due on distance sales of imported goods (in a consignment of a value not exceeding EUR 150) to the Member State of consumption (various Member States, including PL), via the Member State of identification (PL).

The One-Stop Shop makes it easier for businesses selling goods and services to final consumers across the EU to fulfil their VAT obligations by allowing them to:

• register electronically for VAT in a single Member State for all eligible sales of goods and services to final to customers located in all other 26 Member States;
• to submit their returns to a one-stop shop for VAT and make a single payment of output VAT on all those sales of goods and services;
• to cooperate with the tax administration of the Member State in which they are registered for the one-stop shop and to deal with them in a single language, despite the fact that they sell throughout the EU.

The National System of e-Invoices

KSeF, or the National e-Invoice System, can be called the central invoice database. It is an ICT system administered by the National Tax Administration for issuing and receiving structured e-invoices. Taxpayers can voluntarily use KSeF from January 1, 2022. The e-invoicing obligation was in principle supposed to come into effect on July 1, 2024, and for small and medium-sized VAT-exempt companies on January 1, 2025. However, it will be implemented at a later date. At the time of publication, the date is not yet known.

Taxes on capital

Transaction Tax (PCC)

Certain civil law transactions are subject to this tax, among others:

• sale of things or rights
• exchange of things or rights
• loan
• mortgage
• an Articles of Association.

The tax refers to non-professional transactions, when a transaction falls under VAT the tax does not apply.

Typically, the tax is levied as percentage of the value of transaction, e.g. sale of real property or loan are taxed at 2%.

Real estate tax

This tax is levied on land, buildings, apartment and constructions related to business activity. In case of business-related estates, the rates are higher. The maximum rate of the business land tax is PLN 1,16 per m2, whereas in a private case it’s PLN 0.61 per m2. In case of buildings, business related space is subject to the rate of PLN 28,78 per m2. Apartment space is taxed at PLN 1,00 per m2.

Municipalities may decrease these rates in accordance with local resolutions.

Exit tax

The introduction of the exit tax into the Polish tax system, starting in 2019, is due to the obligation to implement Directive (EU) 2016/1164, adopted in 2016. An important premise of the exit tax is the taxation of unrealized gains in connection with the transfer of one’s assets to another country. Tax will also be due in the event of a change in the taxpayer’s residency status, which deprives Poland of taxation on income that arises in connection with the disposal of an individual’s assets.

The general idea behind the introduction of exit tax was to cover only assets with a value exceeding PLN 4 million. This applies in the case of transferring assets abroad.

The rate of exit tax is equal to 19% and 3%.

The change in the PIT is the extension of the exit tax deadline to:

• the seventh day of the month following the month in which the taxpayer lost all or part of the assets subject to this tax, if the loss of all or part of the assets occurred before December 1, 2023, and.
• December 31, 2023 in other cases.

Other business-related taxes

Motor vehicle tax

Excise duties

Customs duties

Sugar tax