The minimum income tax (10%) is the answer to tax avoidance of income by companies operating in Poland. According to the draft Polish Deal, its revenues are to bridge the CIT budget gap. In the amendment to the Polish Order * of September 8, 2021, a new concept was introduced - minimum income tax . It is to cover companies with their registered office or management board in Poland and tax capital groups in the event that:
suffer a loss from a source of income other than capital gains or
the statutory share of income (from a source of income other than from capital gains) in income (other than from capital gains) will not exceed 1%.
This tax is also to apply to non-residents operating in Poland through a foreign establishment (in the part in which the revenues generated and losses are related to the existence of the permanent establishment). Therefore, the minimum income tax is to affect primarily large companies and corporations. On the other hand, investment companies, companies whose shareholders are only natural persons and which have no shares in other companies, companies covered by the Estonian CIT and entities starting business activity during the first 3 years of operation in Poland, will not be subject to this tax. It should be emphasized that when calculating the loss or the share of income in income, the costs resulting from the purchase or improvement of fixed assets classified in the tax year as tax-deductible costs (including depreciation write-offs) are not taken into account. The explanatory memorandum to the Polish Deal, however, explains that when calculating the ratio of income to income, investments made by individual entities will be taken into account. The proposed tax will amount to 10% of the tax base, which is the sum of the relevant elements calculated individually. These items will include:
an amount corresponding to 4% of the value of revenues (from a source of revenues other than from capital gains) achieved by the taxpayer in the tax year,
debt financing costs incurred on behalf of related entities to the extent that these costs exceed the amount calculated in the formula indicated by the legislator,
value of deferred income tax resulting from disclosure in tax settlements, not yet subject to amortization of intangible assets to the extent to which it results in an increase in gross profit or a decrease in gross loss,
costs (e.g. advisory services, advertising services, management and control services, fees and charges for the use or the right to use rights or values), incurred directly or indirectly for related entities or entities residing, registered or managing in the territory or in the country mentioned in the provision, to the extent that these costs in total in the tax year exceed the amount calculated according to the above formula by PLN 3,000,000.
It is assumed that taxpayers will be able to deduct the minimum corporate income tax paid in 3 subsequent tax years. Can the new minimum income tax also affect your company? Contact our law firm.
* Of course, one should bear in mind the fact that the Polish Order is only a bill that has not yet been adopted. Thus, the proposed provisions contained therein regarding the minimum income tax are still non-binding. Nevertheless, it is worth considering possible solutions. Source: Draft together with the justification of the Act on the amendment to the Personal Income Tax Act, the Corporate Income Tax Act and some other acts of September 8, 2021.