Corporate Income Tax
The beginning of 2018 has seen a major amendment of the tax CIT law. One of the biggest changes has been the introduction of new source of revenues in the form of capital gains; income derived from thissource is now separated from the remaining income and, hence, two types of CIT income sources exist in Poland – capital gains and income from business activity as well as special branches of agriculture. Income from these two sources is calculated independently; loss set-offs and carry-forwards are possible only within each of the two income sources. Note that this does not apply to banks and other financial institutions.
Furthermore, the CIT law amendments are aimed at implementing the EU Anti-Tax Avoidance Directive (ATAD), namely in the area of:
- Thin capitalization which is regulated in a new and revolutionary way – the limitations now apply to financing received from both related and unrelated parties, including banks or other financial institutions. The surplus of debt financing costs exceeding 30 % of EBITDA set according to criteria from the tax law may not be recognized as tax-deductible costs, though it may be settled within the next five years, taking into consideration all of the limitations. However, the thin cap limit does not apply to the surplus not exceeding PLN 3 million and to financial enterprises.
- Controlled Foreign Corporations (CFC) – first of all, establishing whether a foreign entity holds a status of a CFC is now dependent on (i) the actual amount of tax collected in the country of CFC taxation which is to be compared to the hypothetical taxation in Poland; (ii) whether a Polish taxpayer holds, on its own or with its related entities, at least 50 % shares in a foreign entity; (iii) at least 33 % of the entity’s income is derived from passive sources (the law includes a list of these). Furthermore, the criterion of whether a CFC runs a real business activity, and is therefore not taxed as a CFC, is altered and set as a comparison of real business activity’s revenues to all revenues of a foreign entity.
Yet another significant change is the introduction of the upper limit of recognizing the costs of immaterial services as tax-deductible costs. Such costs, incurred directly or indirectly, for the benefit of related parties or entities situated in jurisdictions with harmful tax competition may not be recognized for tax purposes in the amount exceeding 5 % of EBITDA. The limitation does not apply to costs not exceeding PLN 3 million. The catalogue of services affected includes, inter alia, advisory, marketing, management, control and similar services as well as payments for the use of fictitious and legal assets.
Last but not least, the following changes in the CIT law are worth mentioning:
- R&D concession – from 2018 onwards, it has been further liberalised to include 100 % of all qualified costs, or even 150 % for R&D Centres. The catalogue of qualified costs now includes, inter alia, civil law contracts. Taxpayers operating in Special Economic Zones may make use of the R&D concession, but need to observe limitations.
- Mezzanine capital – interest derived on the subordinate debt is no longer tax-deductible.
- Debt-push-down – now interest on debt financing related to the acquisition of shares in a merged company cannot be deducted from the acquiring company’s income.
- One-time amortization of fixed assets as well as fictitious and legal assets – the upper limit has been raised to PLN 10 thousand.
Personal Income Tax
Most of the above amendments refer to the Personal Income Tax, too, e.g.
- Changes in CFC regulations.
- R&D concession.
- One-time amortization.
Minimum Income Tax
A brand-new minimum income tax, either minimum CIT or PIT respectively, has been launched. It applies to owners of commercial real estates located in Poland the value of which exceeds PLN 10 million and regards revenues derived from such commercial real estate. Its monthly rate amounts to 0.035 % of the tax base which is the initial value of the commercial building.
TPA offers an overview of the most important tax innovations in the following CEE and SEE countries in which we operate: Austria, Albania, Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Serbia, Slovakia and Slovenia. Investing in CEE/SEE 2018