On 8 September 2021, the Polish government submitted a tax reform bill to parliament as part of a far-reaching package of reforms aimed at reviving the economy in the wake of COVID-19. Dubbed the “Polish Deal”, the package of bills includes overhauls of the tax and healthcare systems, and the tax bill will now proceed for parliamentary approval.
The bill is over 220 pages and particularly wide-reaching. The document has been through a public consultation process and, if passed by parliament, will enter into force from January 2022.
This new regime is generally targeted at taxpayers avoiding taxation, to encourage investment in and movement to Poland, and to establish a fairer, more progressive tax system. The draft does recognise some substance-based situations where companies may incur losses or register lower income in reasonable circumstances, and includes several exclusions, which would apply for: start-ups in the first three years of activity, financial sector entities, companies that registered a 30% year-to-year decrease in revenues, and companies with simple ownership structures.
As well as covering changes in personal income tax rules, the bill contains expansive changes for the self-employed, changes to tax procedures, health insurance contributions, real property, VAT, corporate income tax, and tax relief for entrepreneurs. We’ll cover some points here, but we recommend you review your status with your tax advisor.
The Polish government states that estimated revenue from these new provisions is around €450 million.
One of the most wide-reaching of the proposals is the plan to raise the tax-free allowance for personal income tax (PIT) for individuals from PLN8,000 to PLN 30,000 (c. US$7,500), which will affect some 18 million Poles. However, this is balanced by the proposal that the 9% healthcare contribution be no longer tax deductible, raising the effective tax rate by the same percentage.
Changes to the VAT include:
- the ruling that taxpayers within VAT groups are to report tax as a group.
- VAT will be applicable on financial transactions.
- Changes to the binding rate information (WIS), involving a new agreement, the ‘Investor’s Agreement’, which sets out the tax implications for possible investment in Polish projects.
- A quick VAT refund for non-cash taxpayers – within 15 days if certain conditions are met. Conditions include that the taxpayer’s excess tax to be carried forward to the next VAT declaration period not exceed PLN3,000.
Corporate income tax (CIT)
- A new minimum CIT of 0.4% of revenues plus 10% of a specified tax base would be imposed on corporate taxpayers in two specific circumstances:
- When a corporate taxpayer reports losses from sources of revenue other than capital gains within a fiscal year.
- When a corporate taxpayer reports taxable income from economic activity equal to or less than 1% of tax revenue.
- There is a revised and extended list of non-tax deductible expenses, including: services provided by partners and Management Board members, costs of servicing related party debts, finance equity transactions.
- Account books must be kept electronically, using computer programs, and set to the tax authorities in a structured form (expected to enter into force Jan 2023).
- A new definition of the ‘place of management’ – aimed at reducing the practice of Polish residents registering companies in foreign territory, with no genuine business operations conducted there.
- A long-expected revoking of provisions that limit the deductibility of intercompany payments, which will be replaced by the minimum income tax regime. Companies were able to protect their cost deductibility by receiving an advance pricing agreement (APA), which created a backlog of APA applications awaiting processing (over 400). However, the new bill cuts the benefits of APAs only for those companies that complete the APA by the end of 2021. The right for the deductibility will be saved for the period covered by APA.
- There are further specific changes to transfer pricing regulations, involving: new definitions of ‘associated enterprises’, adjustment of transfer prices, a ‘safe harbour’ mechanism, local requirements for transfer pricing documentation and extension for the period to submit them to the tax authorities.
- Introduction of a ‘holding regime’, which includes: definition of holding company and subsidiary, extension of the anti-abuse regulations to exemptions from corporate tax, capital gains exemption (95% of the amount of dividends received from a holding company’s subsidiaries), and a full CIT exemption for profits on the sale of shares/stocks in subsidiaries – eligible only if the HoldCo has held at least 10% of shares in the subsidiary for a year or more.
- Updating provisions on procedures for collection of withholding tax – a ‘pay and refund’ mechanism.
- Modification to the regulations on flat-rate taxation, (the so-called ‘Estonian CIT’). This aims to expand the list of entities permitted to use the flat-rate, as well as relaxing conditions for fulfilment.
- Relief for employment costs for workers involved in R&D activity, production of prototypes, market launch of new products. This includes a specific relief for businesses using industrial robotics.
- Tax relief for corporations supporting sports, culture, higher education and science.
- Tax relief for IPO costs.
- Tax relief for introduction of payment terminals, promoting cashless turnover.
- Changes in amortisation for real estate companies by limiting the level of amortisation write-downs on RE deductible as tax costs to the write-downs taken according to the rules of the Accounting Act.
- Changes in the regulations governing controlled foreign companies.
The bill is expected to go through parliament soon.
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