January 2019 has seen the introduction of significant changes to the Polish tax law, with the common denominator being the aim of stopping the base erosion and profit shifting. However, the law has also seen some changes which have attempted to ease the taxpayers’ burden. Please see below for the overview of the most important tax changes in Poland from our local tax experts.
1. Corporate Income Tax in Poland 2019
Reduced CIT rate of 9 %
First of all, the favourable CIT rate of 15 % has been further lowered to 9%, though the lawmaker has introduced more restrictive requirements to enjoy it – the taxpayer not only needs to have the small taxpayer status (except for new businesses in their first year), but also its revenues, net of VAT, may not exceed the PLN equivalent of EUR 1.2 million in a given tax year. The lower CIT rate does not apply to income from capital gains and the exit tax.
Transfer Pricing & safe harbour
Secondly, this year has seen yet another revolution in transfer prices. Most importantly, the law now features direct regulation stating that related parties must set the transfer prices in a way that would be established between unrelated entities. Furthermore, the law now features safe harbours for low value added services and loans – which means that the tax authority will stay away from assessing the taxpayer’s income (tax loss) if certain formal conditions specified by the CIT law are met.
Transfer Pricing documentation
The obligation to prepare transfer pricing documentation and its type depends on the net value and type of the transaction type – for values below PLN 2 million there is generally no TPD obligation (except for PLN 100,000 in some cases for joint ventures and partnerships). The basic type of the TPD is the local file which obligatorily features the benchmarking analysis. When consolidated revenues of the capital group exceed PLN 200,000,000, or when a consolidated financial statement is prepared, the taxpayer must also have TPD in the form of a master file. There are simplifications available – one of them is the lack obligation to prepare TPD for transactions between Polish companies without tax losses and which do not enjoy CIT exemptions.
Refunding of withholding Tax in Poland
Moreover, the withholding tax (WHT) has seen a major overhaul (to be applied from June 2019 / January 2020) – in the case of payments made to one contractor, with the payments exceeding in one fiscal year PLN 2 million, the WHT remitter will firstly be obliged to pay WHT as per the domestic WHT rate, and then, the taxpayer or the WHT remitter will be able to apply for a WHT refund. There are exceptions allowing for the use of the exemption or the more favourable rate from the DTA.
Minimum Income Tax
The minimum income tax now applies to owners or co-owners of fixed assets being buildings which have been, at least partly, rented, leased or subject to a similar legal title and are located in Poland. There is a new tax, called the exit tax, which is levied on unrealized gains in relation to the relocation of the asset to a place abroad or the change of the tax residency of the taxpayer falling under the unlimited tax liability in Poland.
News concerning cars
Finally, passenger cars rules have been changed – depreciation and insurance costs of purchased cars or the operating leasing rentals attributable to acquisition cost exceeding PLN 150,000 net of VAT (PLN 225,000 for electric cars) are not tax deductible as business expenses. In the case when the cars are used also for private purposes operation expenses are only 75 % deductible.
2. Personal Income Tax in Poland
Most of the above amendments refer to the Personal Income Tax, too, e.g. new transfer pricing rules, the withholding tax overhaul, the exit tax (though with some changes), passenger cars change and the minimum tax.
There has been introduced a new tax, called the solidarity tax, which amounts to 4 % of the tax base being the surplus income over PLN 1 million less social security contributions and certain CFE-related amounts.
3. Poland important changes in Value Added Tax
The voluntary split payment mechanism, introduced throughout 2018, is continued. It is the way the PLN payments to contractors may be done. By applying this, the payment for the invoice is divided in two parts: the net value is paid to the contractor’s main bank account, and the VAT amount is transfer into the specially-dedicated VAT account. There exist benefits of this mechanism, i.a. the possibility to avoid negative fiscal consequences in some cases, e.g. the additional VAT liability.