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Poland: Proposed changes to corporate, individual income tax laws

Poland: Corporate, individual income tax laws

A draft bill was added on 4 September 2020 to the legislative agenda. The draft bill would amend the corporate income tax and individual (personal) income tax laws as well as the flat-rate income tax for certain revenues of natural persons.

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The purpose of the bill is to “tighten up” the Polish corporate income tax and individual income tax systems. The bill would be expected to bring significant systemic changes to the entire domain of income taxes, including expansion of the scope of corporate income tax to certain tax-transparent entities (such as partnerships that are taxed currently only at the partner level).

There are expectations that the proposals could be passed by the Council of Ministers in the third quarter of 2020.

Corporate taxation at the place where income is earned

One of the key proposed measures would make the amount of tax paid by the largest entities, especially multinationals, dependent on the place where the income was actually earned. This objective would be achieved by expanding corporate income tax to limited partnerships having their registered office or place of management in the territory of Poland and also to general partnerships in which taxpayers participating in the profits are not disclosed, thus helping to address the risk of tax evasion.

The bill would also:

  • Introduce solutions aimed at improved recovery of tax related to income earned on the sale of shares (stocks) in real estate companies by non-residents. Under this proposal, the obligation to settle the tax on the sale of shares in real estate companies would be shifted from the seller to the real estate company.
  • Impose a requirement to prepare and publish information on the implemented tax policy on selected corporate income taxpayers.
  • Revise the transfer pricing regime and would extend application of the arm's length principle in instances when the beneficial owner is located in a “tax haven” jurisdiction and would expand the scope of documentation obligation for such transactions.
  • Revise the rules on the sources of income earned by non-residents in Poland, and would adjust the standards set out by income tax treaties as amended by the Multilateral Instrument (MLI) or the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.

Other corporate income tax proposals

  Other measures in the bill would:

  • Limit the ability to deduct losses in a situation when the taxpayer took control over another entity or made an in-kind contribution in the form of an enterprise or an organised part of the enterprise or a cash contribution, for which the taxpayer purchased the enterprise or an organised part of the enterprise.
  • Clarify existing provisions pertaining to the tax consequences of the settlement of liabilities by cash considerations, and would relate to tangible property transferred by a company or cooperative society in liquidation to its partners (shareholders and/or members of the society).
  • Introduce restrictions on making depreciation rate adjustments in a situation when the taxpayer applies exemptions, thereby limiting the non-actual depreciation of fixed assets and adapting the rules for determining the amount of depreciation write-offs to the principles set out in the Accounting Act.
  • Fix the ratio used to calculate the maximum amount of debt financing costs to be deducted in the given tax year.
  • Increase the upper limit of revenues eligible for the reduced 9% rate of corporate income tax from €1.2 million to €2 million. 
  • Remove possible interpretation doubts related to the limit of the surplus of debt financing costs.

Changes in the area of transfer pricing would affect the rules that currently apply for making transfer price adjustments along with the rules regarding the Local file and the relevant declaration. The goal would be to limit unnecessary administrative and red-tape burden for companies navigating their way through the coronavirus (COVID-19) crisis.

Another amendment relates to the exemption from tax on revenues from commercial buildings. Under this proposal, the exemption could be applied by taxpayers also in a situation when after 31 December 2020 (the end of the current exemption period) the nationwide state of epidemic emergency is still in effect.

Individual income tax proposed changes

Other amendments in the bill relate to individual income tax and would impose restrictions on making depreciation rate adjustments in a situation when the taxpayer applies exemptions, thereby limiting the non-actual depreciation of fixed assets and adapting the rules for determining the amount of depreciation write-offs specified to the principles set out in the Accounting Act.

Another amendment would repeal the “abolition relief” consisting in deducting an amount equal to the tax surcharged in Poland on income earned abroad and subject to settlement in Poland from the actual tax amount, and to allow individual income taxpayers to benefit from the tax exemption on revenues from commercial buildings (analogous to the one proposed in the corporate income tax).

Flat-rate income tax on certain revenues generated by natural persons

Amendments to the flat-rate income tax on certain revenues of natural persons would aim at enhancing the attractiveness of flat-rate taxation of recorded revenues and expanding the group of taxpayers who would be eligible for the regime. The amendments would increase the upper revenue limit for flat-rate taxation to €2 million and the revenue limit for quarterly flat-rate payments.

Another proposal would revise the list of activities that currently are excluded from the flat-rate tax regime, and would be achieved by changing the definition of a liberal profession, lowering certain flat-rates on recorded income, and unifying the amount of the flat-rate for rent and services related to accommodation.

Other changes would concern the fixed amount of tax, including an exemption in situations when the taxpayer's spouse conducts the same business activity and also allowing a possible temporary increase in employment by entrepreneurs paying the fixed amount tax.


Read a September 2020 report [PDF 235 KB] prepared by the KPMG member firm in Poland

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