The Polish Deal legislative package currently processed in the Sejm includes a proposal to introduce what is called minimum income tax (CIT Act, Article 24ca). The new burden would apply to:
- corporate taxpayers with full tax liability in Poland,
- tax groups, and
- Polish permanent establishments of foreign taxpayers.
The drafters did not choose to have any money threshold that would restrict the application of the new tax to only the largest businesses.
The minimum income tax will be 10% of the tax base and will be payable by businesses which either:
- have reported tax losses (other than capital losses); or
- have a net income that is 1% or less of their gross income (excluding capital gains).
In computing their tax loss or net-gross income proportion, taxpayers will not include any expenses (including the depreciation expense) arising from acquisition or improvement of tangibles, and any income or expenses of transactions whose pricing is determined by statute (e.g. electricity transactions).
Simply put, the tax base will equal the sum of:
- 4% of gross income (excluding capital gains), and
- exceeding borrowing costs paid to affiliates to the extent they are above 30% of tax EBITDA, and
- deferred income tax arising through tax recognition of previously unamortizable intangibles to the extent it increases pre-tax profit or decreases pre-tax loss, and
- exceeding costs of management/professional services (advisory, market research, advertising, management and control, data processing, insurance, guarantees etc.), copyrights, licenses, industrial property rights, know-how, transfer of debtor insolvency risk, if they were paid directly or indirectly to affiliates or entities with registered offices or managements in tax havens, to the extent such costs are above the sum of PLN 3M and 5% of tax EBITDA.
Minimum income tax will be reported in the annual return and paid to the tax office by a single payment to be made within 3 months from the end of the tax year.
Minimum income tax will be deductible from general income tax for the same tax year, and any undeducted portion may be carried forward for deduction within three consecutive tax years directly following the year for which the minimum income tax has been paid.
Unless they have come into being through restructuring, the following entities will not pay minimum income tax:
- start-ups within first 3 tax years in business;
- financial enterprises;
- taxpayers whose gross income has fallen by at least 30% comparing to prior tax year;
- taxpayers with simple organisation, i.e. those who:
- have solely individuals as owners, and
- do not hold any of the following:
- shares in other companies,
- units/participations in any investment fund or collective investment scheme,
- interests in any partnerships,
- other interests with the right to payment as a beneficiary or promoter (founder) of any foundation, trust or similar fiduciary structure or arrangement;
- taxpayers who have generated in the given tax year a majority of their gross income (other than capital gains) through:
- the operation of seagoing vessels or aircraft in international traffic, or
- the mining of minerals whose prices directly or indirectly follow global commodities prices.
The draft legislation went through its first reading in the Sejm on 17 September 2021. We will keep you up-to-date about its further progress.
If this issue pertains to your business and you are interested in our assistance please contact our tax experts at WTS&SAJA.