Combatting tax abuse by making regulations stricter has become a permanent feature of changes in legislation that traditionally apply to taxpayers from the beginning of a new year. This is the purpose behind the introduction, starting from 2019, of the obligation (applying to both legal/advisory financial businesses and their clients) to report tax arrangements (known as the Mandatory Disclosure Rules or MDR) and the change in accounting for withholding tax (WHT) based on preferential rates, consisting in introducing the obligation to recover this tax after it has been paid. The introduction of the so-called exit tax, in turn, is to discourage taxpayers from transferring their businesses outside Poland.
Also, a number of advantageous solutions have been adopted. In certain cases, especially in the case of small and medium-sized businesses, these solutions may make it possible for taxpayers to take advantage of tax preferences (e.g. a lower CIT rate).
Below we outline the most important changes to corporate income tax and the obligation to report tax arrangements under the Mandatory Disclosure Rules to apply in 2019.
Tax arrangement reporting under the Mandatory Disclosure Rules
The obligation to report tax arrangements by entities referred to as promoters (which includes tax advisors), beneficiaries (clients) and supporting entities (e.g. notaries and accountants) has been introduced, with the definition of a tax arrangement being very broad. Failure to provide information on the arrangement will be subject to severe sanctions.
The obligation applies retroactively, i.e. it concerns domestic arrangements introduced after November 1, 2018 and cross-border arrangements implemented after June 25, 2018.
Changes to the rules for collecting WHT
According to the new rules, payments to a business partner that is not resident in Poland, exceeding PLN 2 000 000 (annually), will be subject to the obligation to deduct WHT, with a possibility of its refund at a reduced rate or exemption.
The stricter procedure will not apply provided that a statement confirming the appropriate performance of the verification procedures has been submitted and that the relevant documents are in place to confirm that the reduced tax rate (exemption) may be applied. The statement may be submitted by the entity’s management board only.
In certain circumstances, a special official opinion may also be obtained concerning the taxpayer’s possibility of applying the withholding tax exemption. The new regulations will apply to payments made from July 1, 2019.
9% CIT rate for certain business entities
Companies that pay CIT and have revenue of up to EUR 1 200 000 in a tax year commencing after January 1 2019, and companies starting their business activities from 2019, may apply a 9% CIT rate.
Reduced CIT rate for selected types of IP Box income
Income tax at the rate of 5% will apply to income from specific intellectual property rights protected by law.
New rules for accounting for tax loss
Accounting for tax loss has been made easier by allowing losses up to PLN 5 000 000 to be accounted for on a one-off basis.
If the deducted amount exceeds this value, the non-deducted amount will be deductible in any of the following 5 years, but in an amount not exceeding 50% of the remainder to be deducted.
Additional cost on account of hypothetical interest
It will be possible to treat hypothetical interest as a tax deductible cost in two cases: where profit is retained in the company and where its shareholders make additional contributions. The limit on the deduction is PLN 250 000 per tax year. The possibility of deducting it is to be introduced from 2020.
Exit tax - tax on moving out of the country
The obligation to pay this exit tax will apply to both individuals and legal entities transferring their assets abroad from Poland or moving out of Poland.
Under the draft law, two rates apply to PIT payers – 3% of the tax base (applicable where the tax value of the asset is not determined) and 19% in the remaining cases. In the case of individuals, the amount of the asset value in excess of PLN 4 000 000 will be taxable.
In the case of CIT payers, the tax rate is to be 19% of the tax base. The tax base will be the sum of income from unrealized gains determined for individual assets.
Additional sanction in the form of an additional tax liability for tax evasion, of up to 120%
If the tax authority confirms, by issuing a decision, that the taxpayer evading taxation has secured tax advantages, it may impose a sanction on this taxpayer in the form of an additional tax liability of up to 120% of the original liability.