An extract from The Inward Investment and International Taxation Review, 10th Edition
Direct taxation of businessesi Tax on profitsDetermination of taxable profit
CIT is payable at a rate of 19 (or 9) per cent on all income derived from whichever source of income and on all capital gains derived from certain sources of capital gains, subject to certain exemptions. The 9 per cent rate applies for small taxpayers, with the exception of new taxpayers created via the restructuring of existing businesses; this rate does not apply to capital gains. Taxable income is defined by tax rules as an excess of all items of the taxable income (excluding capital gains from certain sources of such gains) over costs of such income in a given tax year. The taxable income is not equal to an accounting profit. In addition, it may include income from gratuitous services and imputed income. For example, according to interpretative guidelines issued by the Minister of Finance, a surety or guarantee issued by a shareholder without remuneration to secure a payment of debts of its corporate company constitutes taxable income of that company. In principle, income from business activities is taxable on an accrual basis. Expenses incurred to derive taxable income are deductible unless they are listed in Article 16 of the CITL, which enumerates non-deductible costs. Non-deductible costs include expenses for the acquisition of land or perpetual usufruct of land, which may not be depreciated but may be deducted upon the sale of such assets, purchase costs of shares and securities until the day of their sale or redemption, certain expenses for promotion, compensation and contractual damages, any donations, expenses (above certain limits) for the use of cars, costs incurred for tax-exempt income or depreciation write-offs pertaining to know-how contributed in-kind to the stated capital of the company, and other costs. According to the general tax interpretative guidelines of the Minister of Finance, however, deductions of payments for the rental of passenger cars used in business activities are not subject to statutory limitations in terms of expenses incurred during the use of such cars (e.g., the cost of fuel); such rental payments are, therefore, fully deductible. Another general tax interpretative guideline of the Minister of Finance states that the cost of food, beverages, lunches and other meals offered to customers and potential customers are not subject to the statutory limitations regarding expenses for the promotion and representation of a taxpayer; therefore, such costs are fully deductible.
As from 2018, new tax rules exclude from tax-deductible costs expenses incurred directly or indirectly for the benefit of affiliated entities or entities that have their seat in countries deemed to have engaged in harmful tax competition, related to the following (intangible) services, to the extent to which the aggregated expenses of such services exceed 5 per cent of the taxpayer's earnings before interest, tax, depreciation and amortisation (EBIDTA):
- advisory services, market research services, advertising services, management and control services, data processing services, insurance, guarantee, surety and similar services;
- licence fees for use of copyrights and IP rights, and know-how; and
- shifting a risk of a debtor's insolvency as regards loans, other than extended by banks and credit and savings unions, including liabilities arising out of derivatives and similar services.
The amount of costs not deducted in a given fiscal year is deductible in the consecutive five fiscal years, within the cap applicable in particular years.
According to case law, company share capital increase is tax-exempt; therefore, costs associated with such increase are non-deductible. However, the costs should be solely narrowed to expenses that are directly connected with such an increase (e.g., notarial or court fees), and not to costs connected with the general functioning of a company or its business activity generating taxable income (e.g., advisory fees), which should be deductible.
Generally, fixed assets (buildings, constructions, machinery and equipment, and vehicles) owned by a taxpayer, acquired or constructed may be depreciated if their projected service life exceeds one year, they are completed and fit for use when they are placed in service, and if they are used for business activities by the taxpayer or a third party on the basis of a rental, lease or similar agreement with the taxpayer.
The following may also be depreciated, regardless of their projected useful life: leasehold improvements placed in service; buildings and constructions developed on land owned by a third party; and buildings, constructions and other assets constituting a separate freehold used by a taxpayer for business activities on the basis of a financial lease agreement.
Taxpayers may also depreciate certain intangible assets such as computer software, copyrights, licences and goodwill.
Interest on loans received to finance acquisitions or to develop depreciable fixed or intangible assets accrued by a borrower before the assets are placed in service is subject to depreciation rather than full deduction. Generally, rates of deductible depreciation write-offs are prescribed by local tax regulations. However, taxpayers may set depreciation rates within certain limits for fixed assets used or improved, and for intangible assets. The minimum depreciation periods for intangible assets are 24 months for licences for computer software, copyrights, films, radio and television programmes, 12 months for R&D costs, and 60 months for goodwill and other intangible assets.
Once established, the depreciation rates for intangible assets may not be changed. Goodwill may be depreciated only in cases of acquisition of an enterprise or its organised part, namely where it is purchased on the basis of a sale agreement; or where the enterprise or its organised part is subject to a financial lease arrangement and is depreciated by the lessee pursuant to applicable rules, or where the enterprise or its organised part is contributed in-kind to a local company under the Privatisation Law.
After a statutory merger or demerger, acquiring companies should continue the depreciation of fixed and intangible assets of the target company on the basis of the same depreciation value, rates and methods. This also applies in cases of the contribution in-kind of an enterprise or its organised part to a company. Depreciation of fixed and intangible assets contributed to partnerships is subject to special tax rules.
From 2018, the minimum CIT will apply on income from commercial properties leased or otherwise made available to third parties: commercial and service buildings (inter alia, commercial centres, department stores) and office buildings classified as an office building in the classification of buildings, where their initial value exceeds 10 million zlotys. The taxable basis is the initial tax value of a building for its tax depreciation decreased by 10 million zlotys. According to a new judgment of the administrative court, only the initial value of the property that is not depreciated constitutes the taxable basis, although it is not stated in the CIT Law explicitly. The tax rate is 0.035 per cent of the table basis per month. The amount of the tax may be deducted from CIT. The tax does not apply to office buildings used exclusively or mainly for the taxpayer's own purposes.Capital and income
There is no capital gains tax in Poland. However, certain capital gains from a disposal or redemption of shares in corporation and partnerships, titles in investment funds, derivative instruments and other securities, and from interest on shareholders' participating loans as well as costs related to such gains should not be aggregated with ordinary income subject to CIT. In principle, capital expenses may be offset only against capital gains, while expenses related to ordinary income may be offset only against ordinary income.Losses
Where costs of ordinary income exceed total taxable ordinary income, in a given tax year, the difference will represent a tax loss. This loss may be carried forward against ordinary income derived in the next five consecutive tax years. However, in any of those five years, the loss from the given year may be deducted in part not exceeding 50 per cent of that loss. It is not possible to carry losses back, offsetting them against prior year income. Tax losses are linked with the legal entity that incurred them. Therefore, in cases of mergers, acquisitions (including purchases of an enterprise) and divisions, an acquiring entity may not carry forward tax losses incurred by a target business prior to such a transaction. Conversely, the acquiring entity may carry forward its tax losses incurred prior to the transaction.
Capital losses may be carried forward under the same rules applicable to ordinary losses. However, ordinary losses may not be carried forward against capital gains, and capital losses may not be carried forward against ordinary income.Rates
As previously mentioned, CIT is chargeable at a rate of 19 per cent or, with respect to small taxpayers, at a rate of 9 per cent. In addition, outbound dividends are subject to local withholding tax at a rate of 19 per cent, and outbound royalty and interest payments are subject to local withholding tax at a rate of 20 per cent, unless a pertinent DTT sets out a lower rate. There is no proposed legislation aimed at a change in the CIT rates after 2019.Administration
The fiscal year is the same as the calendar year, unless a taxpayer selects another period of 12 consecutive months and notifies the tax office by 30 January of a given year.
Polish taxpayers are obligated to pay corporate tax advances on a monthly basis, without, however, an obligation to file monthly CIT returns with the tax office. They may also decide to pay monthly tax advances in a simplified form, in an amount of one-twelfth of the tax due as disclosed in the annual CIT return filed during the preceding tax year. All taxpayers are only obliged to file one annual CIT return within three months from the end of each tax year, and to pay the difference between the tax due and the sum of tax advances paid from the beginning of the tax year.
The taxation system is uniform across Poland (outside small differences in local taxes only). Foreign and local companies and individuals pay the same taxes. The Polish tax system is administered by:
- heads of tax offices, who supervise the collection of taxes in their territories, audit taxpayers and issue individual administrative decisions;
- heads of customs and tax offices, who perform taxation and procedural checks on fiscal settlements and conduct fiscal penalty proceedings; they also issue individual administrative decisions to taxpayers as a result of checks of fiscal settlements that were not corrected by taxpayers;
- heads of tax administration chambers, who supervise the heads of tax offices and heads of customs and tax offices: they are empowered to review administrative decisions of tax offices and customs and tax offices;
- the chief of Country Tax Administration, who generally supervises the entire taxation system on the territory of Poland; examines tax cases that require that final tax decisions be declared null and void, or that tax proceedings already closed be exceptionally resumed; and issues tax decisions in tax cases falling under the local general anti-avoidance rule;
- the head of Country Tax Information, who issues private tax rulings in taxation cases upon the request of taxpayers and withholding tax agents; and secures, processes and publishes uniform information that is relevant for taxation and customs;
- the Minister of Finance, who is responsible for budgetary policy. He or she, ex officio or upon the request of taxpayers and other entities, issues general guidelines applicable to tax rules that in his or her opinion require uniform interpretation; and
- local self-government authorities, which are responsible for the collection of local taxes.
Taxpayers may, within 14 days, appeal against a tax decision or a private tax ruling of the local tax authority. Afterwards, a complaint against the tax decision or a private tax ruling may be submitted, within 30 days, to the district administrative court, and subsequently to the Supreme Administrative Court of Poland (NSA).Tax grouping
Tax advantages of a few single companies may become apparent in the case of the creation of a 'tax group', which may compensate losses of some of its members with profits of the remaining members. The tax group may be formed by corporations that meet the following conditions:
- they are limited liability or joint-stock companies incorporated in Poland;
- the average share capital of the member companies is not less than 500,000 zlotys, excluding the value of the share capitals covered by shareholders' loans, interest thereon or non-depreciable intangibles;
- in principle, a parent company directly holds 75 per cent of the shares of the subsidiary companies;
- the subsidiary companies do not hold shares in other subsidiary companies being members of the tax group; and
- before joining the tax group, the companies do not have any tax arrears towards the State Treasury budget.
Once the tax group is formed, the following additional requirements must be met: members of the tax group may not be exempted from CIT; the ratio of taxable income of the tax group to its total revenue in each tax year must be at least 2 per cent; and members of the tax group need to price transactions with related entities from outside the group at arm's length according to Polish transfer pricing rules.
Violation of any of these conditions results in the dissolution of the tax group and its members have to settle CIT on their own for a current tax year and previous two tax years. The group is also dissolved at the end of a period for which it was established.
The parent company and the subsidiaries that establish the tax group need to do so for at least three years under an agreement in the form of a notarial deed to be registered with the tax office.
Each member of the tax group should calculate its profits (capital gains) or losses separately in accordance with the ordinary rules. The taxable income of the tax group is defined as an excess of total taxable profits and capital gains of members of the group over ordinary losses and capital losses of the other members during the tax year. However, tax losses or profits from years before or after the life of the tax group may not be offset against the income or losses of the tax group. The tax group is a taxpayer liable to CIT at the regular rate of 19 per cent, which should be withheld by the parent company, but for which tax all the members of the tax group may be held liable jointly and severally. If the total losses of the members exceed their total profits, such difference represents a tax loss of the tax group. However, in practice, such a situation violates the 2 per cent profitability requirement for the tax group, and triggers the end of the tax group as of the date the group files its annual tax return for its given tax year.
Owing to the required 2 per cent profit-to-revenue ratio, the benefits of creating the tax group are generally seen as rather strict when compared with the potential 'fruits' of the creation of such a group.ii Other relevant taxes
Other taxes in Poland are:
- excise tax;
- stamp duty;
- tax on civil law transactions;
- real estate tax and other local taxes;
- tonnage tax;
- gambling tax;
- donation and inheritance tax (which, however, does not apply to legal persons);
- tax on mines;
- tax on certain financial institutions;
- tax on retail sales; and
- congestion tax.
Polish VAT is in general harmonised with the EU VAT legislation, including Council Directive 2006/112/EC of 28 November 2006 on the common system of VAT. Pursuant to Article 5, Section 1 of the Polish VAT Law, in principle, supply of goods (inter alia, intra-Community acquisitions and supplies of goods) and provision of services against consideration in the territory of Poland are subject to Polish VAT at a rate of 23 per cent. Gratuitous services and supplies of goods without remuneration may be also taxable. For some goods and services, VAT rates have been reduced to zero, 8, 7, 5 and 4 per cent. As of 1 April 2020, a new VAT matrix indicating goods subject to reduced VAT rates will be implemented. The new matrix aims to systematise and unify VAT rates for similar goods and services. Certain services, including education, medical services, insurance, granting and management of loans, dealing in securities and certain other services, are subject to a VAT exemption, and the service provider may not deduct input VAT in such cases.
Pursuant to the above-mentioned EU Directive, Poland has exercised the option that any transfer of an enterprise or organised part of an enterprise is outside the scope of Polish VAT. In addition, input VAT on purchases, importation, manufacturing and use (rent, lease) of passenger cars, and VAT on the purchase of engine fuel, maintenance and other services related to such cars, may be deducted provided that passenger car is used solely for business activities. If a passenger car is used for both business and private purposes, 50 per cent of the input VAT may be deducted. Taxpayers using passenger cars for business activities only should maintain VAT records that include details about the driver, his or her itinerary and mileage.
The VAT Law states that services provided by Polish suppliers to foreign service recipients are not subject to Polish VAT, and are subject to VAT in the country where the recipient of services has its seat or fixed establishment, provided that the recipient is registered for VAT in that country.
Over the past few years, Poland has introduced many measures to tackle the VAT carousel frauds. In 2018 the 'split payment' was introduced to the VAT Law. Under this mechanism, the purchaser is eligible to: (1) divide the amount following from the invoice received into VAT part and a net price; (2) pay the VAT part to a special 'VAT bank account' of the supplier; and (3) pay the net price to the current bank account or settle it in some other way (e.g., in cash or set off).
As of 1 November 2019, the split payment is mandatory in the case of domestic supplies of certain goods and services, if the gross value of the transaction exceeds 15,000 zlotys and the payment is made via a bank transfer. As a result, all VAT payers trading in these goods and services are obligated to open a bank account in Poland for the purpose of settlements within the split payment mechanism. In addition, invoices documenting these transactions must include the words 'split payment'. Failure to comply with the new rules may result in imposition of severe pecuniary fines, both for the supplier and the purchaser.
The application of the split payment mechanism to transactions not meeting the above-mentioned conditions is optional. However, in the case of purchase of certain goods and services, the purchaser may be jointly and severally liable with a supplier of such goods for the payment of VAT chargeable on that supply if no split payment was used and the purchaser knows or should reasonably know that the supplier is not going to pay VAT on that supply.
Additionally, as part of the fight against tax frauds, a special register of VAT taxpayers was introduced which include, inter alia, bank account numbers of the VAT taxpayers. Failure to make payment for supply of goods or services to such a bank account of the supplier indicated in the register is subject to severe sanctions. However, the purchaser may be released from the sanctions provided that the purchaser notifies the tax authorities that the payment was made to a bank account not listed in the register and indicates the number of that bank account.
Similarly, as with VAT, the Excise Tax Act is harmonised with the respective EU regulations. The tax is charged on certain supplies of goods, including intra-Community acquisitions and supplies of goods in Poland.
Excise tax is imposed on certain transactions performed by the taxable entity, such as transactions involving:
- import, intra-Community acquisition and first domestic sale of passenger cars that are not registered in Poland; and
- import, intra-Community acquisition, production or transfer to a tax warehouse, domestic supplies and use of certain engine fuels and gas, heating fats, oils and gas, coal products, other energy products, electric energy, and alcohol and tobacco products listed in Attachment 1 to the Excise Tax Law, including the use of dried tobacco plant or goods exempted from excise tax because of their intended use if they are used contrary to their intended use. As of July 2020, excise duty will be levied also on electronic cigarettes and 'innovative products' including tobacco (e.g., heat not burn products).
Excise tax is calculated either as a percentage of the value of taxable goods (or their customs duty value) or as a flat fee per the quantity basis (fee per unit).
Stamp duty is payable in nominal amounts on certain acts and documents, including:
- official applications;
- official acts;
- permits; and
- certain documents (e.g., powers of attorney presented in administrative and court proceedings).
Stamp duty rates are determined in relevant schedules to the Stamp Duty Act, and paid in cash or by a bank transfer.
Tax on civil law transactions is a capital (transfer) tax levied on certain civil law transactions and certain legal acts and their amendments, in particular, on the sale and exchange of goods and property rights agreements, loan agreements, on setting up a mortgage, establishing a corporate company or partnership, and increasing the company's share capital, additional shareholder payments or loans. The tax is due if related goods are situated or property rights are exercised in Poland, or their purchaser has its residence in Poland, and the transaction itself takes place in Poland. With few exceptions, this tax is not payable if the transaction is subject to VAT, even when VAT-exempt.
Civil law transactions tax rates are either fixed or ad valorem. The rates include:
- 2 per cent of the market value of the subject of the transaction on the sale or exchange of real estate, perpetual usufruct right or movable goods;
- 1 per cent of the market value of the subject of the transaction on the sale or exchange of other property rights, including shares in companies;
- 0.5 per cent of the par value of the share capital on the establishment of a corporation or partnership or an increase in a share capital; and
- 0.5 per cent of the principal amount of loans.
A number of tax exemptions apply, including a tax exemption on loans extended by a direct shareholder to its company and by non-residents of Poland conducting business activities that encompass the extending of loans. In addition, an exchange of majority shares in one company for new shares issued by another company is tax-exempt. The tax exemption also applies to an in-kind contribution of an enterprise or its organised part to the stated capital of a local capital company as well as to mergers or transformations of those local capital companies. According to a tax ruling issued by the tax authorities, a limited partnership issuing shares should be treated as a corporation, and that transfer tax exemptions pertaining to corporate mergers and restructurings should therefore also apply if they refer to a limited partnership issuing shares.
Local taxes include:
- real estate tax;
- transportation tax (imposed only on lorries and trucks);
- marketplace tax;
- agricultural tax;
- forestry tax;
- dog owner tax; and
- sanatorium tax.
Local self-governments are entitled to establish rates for certain taxes within the limits set by law. The most important local tax is real estate tax, which is paid annually (in monthly instalments) by an owner or possessor of real property and constructions, and their parts, including devices and equipment facilities, connected with business activities. For real estate used for business, the maximum tax rates in 2020 are 23.90 zlotys per square metre for buildings connected with business and 0.95 zlotys per square metre of land. In addition to statutorily defined exemptions, local self-government bodies, at their discretion, may establish further tax exemptions and their conditions with a view to attracting investors and businesses to invest in certain regions of Poland. As from 2018, the local self-governments report to the Minister of Finance on the tax rates, tax base and exemptions applied in their regions.
Tonnage tax is imposed on navigation enterprises rendering international sea ship services in transportation of goods and passengers, sea tugboat and sea tow services, sea lifeboat and rescue services, deepening of the sea bottom, as well as certain other services connected with the foregoing, such as the sale of goods and services on ships, currencies exchange, management of passenger and cargo terminals, loading, unloading and reloading of cargo, and ship chartering. Tonnage tax is chargeable to the extent that the navigation enterprise uses ships with a tonnage gross (GT) capacity exceeding 100GT, and provided that it has selected to be the taxpayer of this tax instead of CIT for 10 years. The tax is chargeable at a rate of 19 per cent on total lump-sum income calculated as an aggregated product of the total net capacity (as determined in the international measurement certificate) of each ship used for the taxable services, and rates decreasing from €0.50 to €0.10 for each 100 tonnes of net capacity of each ship per day. In addition, these ship owners pay tax at a rate of 15 per cent of the gross proceeds from the sale of ships if these proceeds are not reinvested into the purchase, reconstruction or modernisation of ships within three years. They are exempted from CIT.
Gambling tax is imposed on businesses organising gambling activities (casino roulette, card games and gambling, bingo games, various lotteries, mutual bids, slot machines, etc.) under permit, except for promotion lotteries and poker tournaments; it is also imposed on individual participants in poker tournaments. Tax rates differ with respect to each gambling activity and game, and vary from 2.5 to 50 per cent of proceeds from given activities.
Inheritance and donation tax is levied on natural persons only, and depends on the tax bracket, which in turn depends on the degree of relationship between a donor and a donated party. The first two brackets pertain to relatives, and the third to other persons. The tax rates for the first bracket are 3 to 7 per cent; for the second, 7 to 12 per cent; and for the third, 12 to 20 per cent. There also apply tax exemptions regarding certain assets and regarding inheritance or donations of all assets between certain family members.
The tax on mines is imposed on copper, silver, crude oil and natural gas mining. For copper, the tax rate amounts to (0.033 × average copper price + (0.001 × average copper price)2.5) × 0.85, and applies to each tonne of copper mined by a taxpayer or included in copper concentrate produced by the taxpayer. For silver, the tax rate amounts to (0.125 × average silver price + (0.001 × average silver price)4] × 0.85, and applies to each kilogramme of silver mined by a taxpayer or included in silver concentrate produced by the taxpayer. If the average prices of copper or silver drop below the statutory determined thresholds, higher tax rates will apply, with a minimum tax rate of 0.5 per cent of the average price of copper or silver. From 2016, tax is also levied on production of natural gas and production of crude oil. The tax is levied at ad valorem rates of 1.5 to 3 per cent for natural gas and 3 to 6 per cent for crude oil. In addition, a tax incentive rule entered into force according to which the tax may be reduced by 19 per cent of tax losses that could not be deducted for income tax purposes. The tax should be declared and paid to the proper tax office for each month within 25 days of the following month.
In 2016, a new tax on certain financial institutions was introduced. The tax applies mainly to Polish banks, insurance institutions and branches of foreign banks and insurance institutions. The tax is levied on the accounting value of assets exceeding a statutory threshold of 4 billion zlotys for banks and 2 billion zlotys for insurers. The value of assets constituting a tax base is calculated jointly for all affiliated insurance institutions liable to the tax. The tax is charged at a rate of 0.0366 per cent monthly.
In 2016, the new Act on Tax on Retail Sales was adopted by Parliament. The tax applies to the revenues of retailers. A monthly surplus of those revenues over 17 million zlotys is subject to tax at a rate of 0.8 per cent, and a monthly surplus of revenues over 170 million zlotys is subject to tax at a rate of 1.4 per cent. The European Commission held in its decision that the tax was in breach of EU state aid rules and ordered to suspend the application of the tax. Poland appealed that decision to the General Court, which subsequently ruled that the tax did not constitute state aid. The General Court's verdict was appealed by the EU Commission to the CJEU and at the time of preparing this publication the case is still pending before the CJEU. The collection of the tax on retail sales has been suspended until 1 July 2020.
Recently the Polish Minister of Entrepreneurship and Technology suggested that it is considering introducing a 'congestion tax'. As hinted by the Minister, the new tax could be imposed on big-box retailers and its amount would depend not on a turnover but on the degree of disturbance in urban space caused by the operations of a given retailer. The congestion tax should be used as an alternative to tax on retail sales, which is subject to pending proceedings before the CJEU. However, no draft law has been published yet and it is not certain if the Minister will proceed with the implementation of congestion tax.