On 30 November 2020, the acts amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act on Flat-Rate Income Tax on Certain Revenues Generated by Natural Persons and certain other Acts were published in the Polish Journal of Laws and thus entered into force. The acts, effective as of 1 January 2021, bring a raft of changes to the Polish income tax regulations, including extension of CIT obligations to limited partnerships and certain general partnerships, a requirement to prepare and publish a report on the tax strategy executed in the given tax year imposed on certain taxpayers or the possibility to apply an alternative CIT scheme (a solution dubbed "Estonian CIT").
As from 1 January 2021:
- will become CIT payers.
Limited partnerships, however, may decide to apply the new rules from 1 May 2021.
Essentially, this means that the income generated by limited partnerships (and certain general partnerships) which, up to now, have been treated for CIT purposes as tax-transparent entities, is to be covered by CIT at the partnership level and PIT or CIT at the partner level.
At the same time, however, the new act provides for a tax exemption on the portion of revenue earned by limited partners through shares in a limited partnership. The exemption will encompass 50 percent of the revenue earned by a limited partner through shares in a limited partnership, however, no more than PLN 60k annually. In turn, general partners will be entitled to deduct the income tax, calculated based on the income from the participation in the limited partnership's profits, by the amount of tax already paid by the partnership, proportionally encumbering the general partner's profit obtained from the participation in such partnership.
However, the exemption will not apply in situations where the nature of relationships between general partners in limited partnerships or the way of managing the limited partnership would suggest that the partners' primary intention behind the establishment of such a partnership is tax optimization.
Furthermore, the amendments impose on certain taxpayers a requirement to prepare and publish a report on the tax strategy executed in the given tax year.
The reporting obligation is to be placed on:
The report must take into account the nature, type and size of the taxpayer's business activity and include information on:
The report should be presented by taxpayers within 12 months from the end of the tax year.
This means that taxpayers having the taxable year coinciding with the calendar year in general will have to present the information on the tax strategy executed in 2020 by the end of 2021.
Other changes, applicable as of 1 January 2021, include the implementation of the solution commonly referred to as "Estonian CIT", i.e. flat rate on income in capital companies.
The main assumption of the model is that eligible CIT payers will not have to pay income tax until they decide to distribute the company’s earning.
The Estonian CIT scheme may be applied only by companies meeting a number of criteria. In particular:
Moreover, the companies willing to apply the solution will have to increase their direct investment expenditures by 15 percent (but no less than PLN 20k) over two consecutive years or 33 percent (but no less than PLN 50k) over four consecutive years, unless, in two consecutive tax years covered by flat-rate taxation, the company incurred expenses related to remuneration of employed natural
persons, except for shareholders, in an amount higher by 20 percent (not less than PLN 30,000) vs the amount of such expenses incurred in the tax year preceding the
two-year flat-rate taxation period.
These conditions will be relaxed for companies starting their business. For example, the conditions for using the Estonian CIT solution will be deemed satisfied if the company, in the first year of its operations, achieves an average revenue of PLN 100 million and meets the passive income requirement. Moreover, the requirement of keeping at least three natural persons employed will be waived in the first year of business and two consecutive tax years.
The Estonian CIT scheme may be applied for four years (with an option of extension).
Other changes brought by the new acts include:
The potential impact of the amendments on your business should be taken into consideration and thoroughly assessed.
If you would like to learn more about the issues discussed, please do not hesitate to contact us at firstname.lastname@example.org
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