Poland: Changes to draft legislation concerning corporate minimum tax, individual income tax

The Ministry of Finance on 8 September 2021 announced the final revision of the tax amendment package. Additionally, draft legislation that would amend the corporate income tax, individual (personal) income tax, and other tax laws, taking into account some of the comments to the previous draft submitted during the consultation phase was passed to the lower house of the Polish Parliament.

The draft bill was put out for public consultation in July. Read TaxNewsFlash

The draft bill has been sent to the Lower House of the Polish Parliament. The tax changes are expected to be effective on 1 January 2022. Changes to the package are highlighted below. 

A new levy, referred to by the Ministry of Finance as the “large corporate tax,” would, in principle, operate as a minimum tax on multinationals that do not declare any taxable income in Poland, is also to be introduced.

It would be imposed on limited liability companies, joint-stock companies and tax capital groups, as well as non-residents conducting business activity through foreign permanent establishments reporting losses from a source of revenue other than capital gains or for which a share of income from a source of income other than capital gains in revenue other than capital gains amounts to 1% or less.

The tax would not target small and medium enterprises (SMEs) or simple-structured entities. It would also exclude financial sector entities subject to the bank tax, corporate income taxpayers in the first three years of business operations and companies heavily affected by the COVID-19 pandemic.

The tax would be set at 10% of the taxable base, that is, the sum of: 1) 4% of the value of revenues from sources other than capital gains, 2) debt financing costs incurred for the benefit of related entities, 3) the value of deferred income tax resulting from the disclosure of non-depreciated intangible assets in tax settlements, to the extent it increases gross profit or decreases gross loss, and 4) the value of costs of purchase of particular services or intangible rights incurred for the benefit of related entities (or entities from countries or territories pursuing harmful tax competition), in the part specified in the legislation. The currently applicable Article 15e of the corporate income tax law, setting a cap on the tax-deductible costs incurred by the taxpayer in connection with the purchase of services or intangible rights would be repealed.

In principle, the taxable base-reducing values will consist of deductions limiting the taxable base in CIT, excluding the bad-debt relief and the income taken into account in calculating tax-exempt income achieved from conducting business activities in special economic zones (Polish investment zone).

The amount of the minimum income tax paid for a given tax year would be deductible from the tax calculated according to general rules. The deductions would be made in three consecutive tax years immediately following the year in which the taxpayer paid the minimum income tax.

The minimum income tax would be calculated and remitted on an annual basis. Importantly, taxpayers would be also required to report the taxable base, how it was reduced, and the amount of the minimum income tax due in the annual tax return.

The rules on the amount of health insurance contributions paid by entrepreneurs applying flat-rate personal income tax, lump-sum tax or fixed amount tax scheme have been relaxed.

Under the latest version of the bill, starting from 2022, taxable persons remitting flat-rate tax would pay healthcare insurance contributions at the rate of 4.9%.

In turn, the healthcare insurance contribution amount for entrepreneurs subject to lump-sum taxation scheme would depend on the average monthly remuneration and the revenue threshold they fall under.

The deadlines for settling health and social security contributions would also be standardized and extended. 

The principles of applying the Estonian corporate income tax scheme are also to be modified. Apart from repealing the revenue threshold, granting the possibility of using the scheme to cooperative societies, limited partnerships and limited joint-stock partnerships, and eliminating entry/exit taxation, the draft bill is now to provide for decreasing effective rates of joint taxation in individual income tax and corporate income tax, from 25% to 20% for small taxpayers and from 30% to 25% for large entities.

The rules of applying for the return relief in individual income tax were also clarified. According to the amendments, the relief may be used by individuals with Polish citizenship and holders of Karta Polaka [Polish Charter] who for the last three years remained non-residents of Poland for tax purposes. The fact of living outside Poland can be confirmed not only with a certificate of residence, but also with other documents (e.g., certificates issued by administrations of other countries and documents regarding work or registration abroad).

Furthermore, regulations on extending tax residence, giving rise to the obligation of settling corporate income tax in Poland imposed on foreign taxable persons, are also to be amended. The requirement of having a place of residence of the managerial staff, registered office, or place of management in Poland would be superseded by the requirement of managing the current affairs of the taxpayer from the territory of Poland in an organized and continuous manner.

Finally, deadlines for settling some types of relief would also be extended. Those deadlines for settling the expansion relief and the monument relief would be extended from five to six years and the deadlines for settling the relief for using a payment terminal and the prototype relief would be extended from four to six years and from two to six years, respectively.
 

Read a September 2021 report prepared by the KPMG member firm in Poland