- Changes in the field of tax law, known as the Polish Order, have been introduced in Poland on an unprecedented scale and are still being changed and corrected. There is no doubt that the package of solutions will have a significant impact on the activities of all entrepreneurs operating in Poland, including foreign investors.
- Below are the key questions you may ask yourself in anticipation of the new regulations. We point out the issues that should be particularly taken into account in the context of the Polish Deal.
- We will help you analyse the impact of the tax changes on your company in each of the indicated areas.
How can we help you?
Do you use subsidiaries in your business? Do you run your business using several related companies or a capital group?
- Several subsidiaries of the same parent company can form a VAT group if their activities are related to each other. A VAT group is deemed a single taxpayer, as a result of which transactions between the companies are not taxable, and their VAT settlements are made in a single VAT return. This facilitates mutual settlements and improves cash flow. Read more about the VAT group.
Do you provide financial services? Do you trade in currencies? Do you provide services to investment funds? Do you trade in shares?
- The Polish Deal provides for the possibility of taxing certain services exempt from VAT. Although this will create output tax, on the other hand it will significantly increase the amount of VAT deductible on an ongoing basis from purchase invoices. The sales structure ratio will also be more favourable, and sometimes it will not be applied at all. The option to choose taxation will be valid for 2 years, after which time you will be able to return to the exemption or continue to benefit from taxation. Check out the benefits of the option.
Do you run a retail business? Do you allow your customers to pay by means of a payment card? Do you use fiscal cash registers?
- If not, check how this may affect the time limit for the recovery of VAT from the tax office.
Do you need funds to develop your business, but in your accounts the VAT on purchases exceeds the VAT on sales?
- Check whether you are entitled to a VAT refund within 15 days of filing your return.
- Claim the R&D tax relief and deduct up to 200% of costs of salaries of employees involved in R&D activity and 100% of other eligible costs.
- Check whether you can take advantage of the 5% income tax rate and combine it with the R&D tax relief.
- Take advantage of the new relief for a trial production. It allows you to deduct 30% of the total cost of trial production and the marketing of a new product resulting from R&D work from your tax base.
- The relief is granted as of the first cost incurred in connection with the start-up to the commencement of production.
- It is to be settled in the year in which the costs are incurred or in six subsequent tax years.
- Take advantage of the robotisation relief, thanks to which you can deduct up to 50% of the expenses incurred for the purchase or financial leasing of industrial robots from your income.
- The relief will be valid for 5 years – from 2022 to 2026.
- Deduct from your income up to PLN 1 million of the costs of increasing sales of your products as incurred in a given year.
- The relief will cover the costs of participation in fairs, promotional and information activities, adjustment of product packaging to contractors’ requirements, preparation of documentation enabling the sale of products or preparation of documentation for a tender.
- Take advantage of the consolidation relief, which will allow you to deduct the transaction-related expenses associated with the purchase of shares in a capital company.
- The relief will cover, among other things, the costs of legal services, valuations, notary fees, court fees, stamp duty, audit or Polish and foreign taxes.
- Take advantage of the IPO relief to deduct 150% of the expenses for the preparation of an initial public offering, including: the expenses of a notary public, stock exchange fees, court and stamp duty as well as the costs of announcing and preparing a prospectus.
- Deduct an additional 50% of expenses on legal services (up to PLN 50 thousand).
- You will have fewer obligations related to preparation of benchmark analyses for selected types of transactions
- Micro and small enterprises will be exempt from the transfer pricing analysis obligation
- Additionally, there will be no need to prepare transfer pricing analyses for “haven” transactions
- You have a chance to take advantage of the new exemptions under the Polish Deal
- You will not have to submit a separate statement on the preparation of transfer pricing documentation and the arm’s length nature of the transfer prices applied – this information will be included in the TP-R
- Please note the changes in the rules of signing the TP-R form
- The deadlines for preparing transfer pricing documentation in case of a tax audit will be longer
- The TP-R reporting deadlines will be extended by 2 months (to the end of the 11th month following the end of the tax year)
- There will be a new exemption from preparing transfer pricing documentation for financial transactions covered by the safe harbour mechanism, which itself will also be modified
- The changed deadline for submission of local transfer pricing documentation is 14 days
- The Polish Deal will abolish the obligation to prepare ORD-U form if the taxpayer submits TP-R
- Also, re-invoicing transactions will not trigger documentation obligations (once 5 conditions have been met)
- The Polish Deal introduces a new approach to fulfilment of conditions
- There will no longer be an obligation to inform about making adjustments in the annual return
- Please note: The Polish Deal clarifies the penalty in the Fiscal Penal Code (the threat of the highest fine) for failure to prepare local transfer pricing documentation, failure to attach group documentation or failure to prepare documentation inconsistent with the actual state of affairs.
- Thanks to the so-called investment agreement (a new concept in the Polish Tax Code) you will be able to obtain an APA “in one go” – along with other decisions of the tax administration
- You will need to inform your employees or contractors about the changes in the health insurance encumbrance resulting from the Polish Deal, and thus about the impact of the Polish Deal on net salaries.
It is also important to support HR / payroll departments regarding the planned changes in the calculation of PIT and Health Care encumbrances for your employees.
- Unlike now, your remuneration on the basis of your appointment will be covered by mandatory health insurance.
- Provide your service providers with information about the changes to the way health insurance contributions are calculated and encourage them to familiarise themselves with the detailed regulations that have a real impact on their income.
- It is worth finding out more about the planned relief, which is intended to compensate some employees for the non-deductibility of the health insurance contribution and will already be applied at the advance payment stage by the employer.
- If you are planning to return / move permanently to Poland after having lived abroad for several years, please familiarise yourself with tax preferences which may reduce your tax encumbrance for several years after the relocation.
- Find out what the new tax thresholds will be and, consequently, what income will be taxed with 17% PIT and what income will be taxed with 32% PIT.
- The amounts of employee income due to employees’ gratuitous use of a company car for private purposes will change.
- Get acquainted with the tax consequences for your company resulting from the illegal employment of employees with respect to the allocation of revenue to the employer for each month of illegal employment and the non-deductibility of remuneration paid for illegal employment.
Do you provide services that can be subject to lump sum tax on registered income? Do you purchase services from persons you cooperate with on the basis of B2B agreements?
- Consider the lump-sum tax on registered income available to most self-employed persons. There are also plans to reduce the lump-sum rate for certain services (e.g. medical services, IT services). For taxpayers subject to lump sum tax on registered income, the health insurance contribution will be calculated differently.
Such a solution may prove to be more beneficial in the light of the planned changes in the tax encumbrance on entrepreneurs.
- The planned changes will also affect tax settlements of persons settling their income on the basis of a fixed amount tax. At the same time, new taxpayers will no longer be able to opt for a fixed amount tax, and resignation from this method of settlement will be definitive.
- Consider taking advantage of an investment agreement – this may be a tool that provides you with tax security when making your investment.
- An agreement is a new concept that allows the tax consequences of an investment to be determined. It differs from the already effective advance tax rulings; therefore you should carefully analyse the conditions that have to be met to sign an agreement with the tax authorities.
- Please note: an agreement may be terminated by the tax authority in the event of a change in the jurisprudence.
- Please note the changes in the time limits for initiating tax proceedings: the authority will be entitled to initiate proceedings at any time after a tax audit if there is a justified suspicion that a tax avoidance decision may be issued or when the Head of National Revenue Administration makes such a request.
- This means that the guarantee of limitation of the right to initiate tax proceedings will be of illusory nature in practice.
- Find out how you can defend yourself against late initiation of proceedings by the authority.
- Please note the change in the local jurisdiction of tax authorities in the event of a justified suspicion of tax avoidance.
- In cases where an anti-avoidance clause may be applied, amended rules on the refund of tax overpayments will apply.
- The rules for issuing precautionary opinions and decisions specifying the conditions for reversing the effects of tax avoidance will also change.
- The Polish Deal introduces a new form of enforcement of tax arrears – temporary seizure of movable property.
- In the course of customs and fiscal audit officers will be able to seize your movable property if they find that an administrative enforcement procedure is being conducted with respect to an overdue amount exceeding PLN 10 000.
- Seizure may be effected for a maximum of 96 hours. During that time it will be necessary to verify the arrears and approve the seizure.
- Find out whether you can challenge the authorities’ actions in this respect.
- Fiscal administration officers will be able to purchase goods and services to check whether taxpayers record sales in a fiscal cash register and issue fiscal receipts to buyers.
- Make sure what rights you are entitled to as the entity subject to the check.
- From 1 January 2023, you will be obliged to send them to the tax office in electronic form by the deadline for filing the annual tax return.
- If you are a PIT payer, this obligation will also exist during the tax year, on the date of payment of advance payments for income tax
- From 1 January 2022, in the case of transformations and acquisitions involving partnerships, you will in any case be obliged to close the books in the transformed or acquired company
- Keep an eye on the records. From 1 January 2022 illegal employment will result in additional tax revenue for the employer in the amount of the minimum wage
- In such case, the employer will also be obliged to pay the outstanding tax and Social Security contributions of such employee. The overdue fees will not be tax deductible for the employer.
- The right of real estate companies to make depreciation deductions for tax purposes is to be limited. Depreciation write-offs on non-residential buildings will not be allowed to be higher than write-offs made for accounting purposes. Doubts remain with regard to real estate representing … [chyba czegoś brakuje]
- In addition, residential buildings / dwellings are not to be depreciated at all.
Are you planning to reorganise your company? (mergers, exchange of shares, division, liquidation, restructuring)
- From 1 January 2022, in the case of transformations and acquisitions involving partnerships, you will in any case be obliged to close the books in the transformed or acquired company
- The tax neutrality of mergers, demergers and share exchanges may be subject to additional conditions and, in practice, limited. The Act does not provide for transitional provisions, with a minor exception.
- If a Polish company is taken over by a foreign company, the consequences thereof should be carefully considered, as taxation in Poland may occur, inter alia, in the event of numerous reorganisations regarding the same companies or the valuation of assets at market value on the part of the acquiring entity.
- Beware of valuations! The exchange of shares will not be exempt from taxation if the issue value of the shares received in exchange for the contribution in kind is higher than the market value of the contributed shares.
- Income from the receipt of cash from the reduction of a capital share in a company that is not a legal entity has been added to the catalogue of income.
Do you generate most of your revenue from non-financial activities and it does not exceed PLN 100 million per year?
- Consider applying the so-called “Estonian CIT”; the main benefits of this taxation model include:
- deferral of the moment of tax payment (4 or even more years)
- relatively low rate of combined CIT and PIT (currently 20%, 25% or 30%).
- From next year these rates are to be even more attractive, because the currently binding condition concerning the so-called investment outlay will be abolished.
- The “Estonian CIT” is possible for entities from any industry. Remember, however, that the so-called financial revenues of a taxpayer settling in this model cannot account for more than 50% of total revenues.
- Please note: the regulations on “Estonian CIT” are complicated and imprecise in certain areas. Therefore, before implementing this model of taxation, carefully analyse which regulations apply in your specific case.
- The Polish Deal provides for stricter rules regarding CFCs. It is worth paying particular attention to the radical extension of the CFC definition.
Do you make payments to related parties for intangible services, debt financing costs or restructuring charges?
- Analyse whether you will be subject to the new tax on pass-through income. The passed-through income will include costs of debt financing and costs of intangible services and licences incurred directly or indirectly for the benefit of a related entity which constitute a receivable of this entity. The provision will apply if:
- the related entity actually pays 25% less tax on the service than the amount that would result from 19% taxation,
- the related entity pays out the amount received (e.g. as a dividend) or recognises it as an expense in any form and
- it constitutes at least 50% of its revenue.
- The rule applies if the sum of costs from particular titles (including those incurred also for the benefit of unrelated entities) amounts to at least 3% of the taxpayer’s deductible costs.
- The bill provides for the possibility to reduce the amount of the tax in connection with the withholding tax and the applied limit pursuant to Articles 15c and 15e, as well as an exception for payments to companies – residents of EU and EEA countries – which conduct substantial real business activity in these countries.
You may still have to pay a new levy – a minimum income tax.
This is to apply to companies and tax capital groups, which during the tax year
• have incurred a loss from a source of income other than capital gains,
• have had a profit to revenue ratio (from a source other than capital gains) of no more than 1 per cent.
- The minimum income tax will amount to 10% of the tax base which is calculated as the sum of (i) costs of debt financing, (ii) costs of certain intangible services provided by related parties, (iii) 4% of taxable revenues.
- The amount of the minimum income tax paid for a given year will be deductible from the tax calculated pursuant to Article 19 (usual CIT liability) in the period of three tax years immediately following the year in which the taxpayer paid the minimum income tax.
- Despite the name often used in media (“tax on large corporations”), the levy will also have to be paid by small and medium-sized taxpayers, as the Polish Deal does not provide for any criterion regarding revenue, balance sheet total or employment.
- Check what impact the planned changes to the withholding tax procedure (WHT) will have on your situation.
- The Polish Deal provides for the possibility to obtain a special opinion protecting from the necessity of applying the “return regime” for payments over PLN 2 million not only with respect to exemptions on the basis of Community directives but also with respect to rates resulting from double taxation treaties.
- The new tax refund regime for payments above PLN 2 million per year (instead of the previous direct application of double taxation treaty or directive exemptions) will apply to the so-called passive payments to related entities. This means that payments for intangible services (e.g. advertising services purchased from global suppliers) will be excluded from this regime. The change is favourable in comparison to the previous wording of the legislation; however, it introduces stricter rules than those currently in force (due to the suspension of the entry into force of the Act).
- Beware of the tightening of the rules for qualifying debt financing costs as tax deductible costs!
- The formula for calculating the amount of the surplus of the costs of debt financing which may be recognised as tax deductible costs will be changed – the sum of PLN 3 million and 30% of tax EBITDA will be replaced with an alternative. Depending on the circumstances, may mean a decrease in the limit of costs by PLN 3 million, thus increasing the tax payable by PLN 570 k per year.
- Another unfavourable change is the absolute prohibition of including debt financing in tax deductible costs, e.g. interest on loans earmarked directly or indirectly for the so-called equity transactions (e.g. acquisition of shares in a company, making additional payments, increasing the share capital in a company) granted by related entities.
- The new provision may cause significant interpretation doubts and seems to overlook the fact that transfer pricing regulations are in force. Moreover, the bill does not provide for transitional provisions.
- The Polish Deal will relax the conditions for establishing a TCG and maintaining the taxpayer status. The changes will include the repeal of the condition for the TCG to demonstrate at least 2% profitability, while changes in the scope of divisions and mergers involving TCG companies are also provided for.
- Changes regarding the settlement of tax losses of companies incurred prior to the establishment of TCGs may in some cases prove unfavourable compared to the previous practice.
- Pay attention to the provision concerning the so-called hidden dividend. Pursuant to the new regulations, from 2023, a company will not be able to recognise as a tax deductible cost such costs incurred in connection with a service provided by a related party.
- Which transactions meet the definition of a hidden dividend? These include situations in which:
- the amount of the costs or the time when they are incurred depends on the fact that the taxpayer has made a profit or on the amount of profit earned,
- the costs in question in the case of unrelated parties would be set at a lower level or would not arise at all,
- the costs relate to the right to use such assets which were (jointly) owned by a partner or shareholder (or an entity related to a partner or shareholder) prior to the creation of the taxpayer.
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