In January 2023, an amendment to the Polish Corporate Income Tax Act will come into force. Pro-fiscal changes as well as solutions that are favourable for taxpayers will be introduced, making certain tax instruments more challenging and some more attractive.
The most important amendments are outlined below.
1. Minimum income tax
Although minimum income tax provisions came into force in 2022, they have been suspended until December 31 2023, giving taxpayers another year to prepare for their application.
Also, the profitability ratio that makes a company subject to minimum income tax has been increased from 1% to 2%. In addition, the formula used to calculate the tax base has been adjusted.
2. Capital gains participation exemption
The conditions for the application of the capital gains exemption for Polish holding companies have been simplified.
Till the end of 2022, a capital gains exemption does not apply if the sold company owns at least 5% of the shares in another company. This limitation will not apply from 2023. The exemption will also apply if the subsidiary benefits from an exemption on income from activity conducted in a Special Economic Zone or within a Polish Investment Zone, which is not possible till the end of 2022.
Another improvement is the replacement of the 95% exemption for dividend income earned by a qualifying Polish holding company with a 100% exemption.
An adverse change is the requirement of having to own the shares of the disposed company for two years (in 2022, this period was one year).
3. Withholding tax
The rules of the pay and refund system have been simplified. The new mechanism includes restrictions on withholding tax on certain payments above PLN 2 million ($400,000). Above this amount, withholding tax must generally be charged by the remitter without applying an exemption or a reduced tax rate, even if the recipient qualifies.
From 2023, the application of an exemption or a reduced withholding tax rate for the entire tax year (regardless of the amount of the payments) will be made possible through a statement filed once in the tax year. In the statement, the remitter will declare that the conditions for the application of this preferential rate are met. The amendment also significantly extends the deadlines for filing these statements.
4. Tax on ‘shifted income’
Clarifying amendments have been made to tax on shifted income, which partly change the mechanics of calculating this tax. Firstly, when calculating whether a related party receives at least 50% of its revenues from passive income, revenues received from all Polish entities that are related parties should be included. Secondly, only expenses included in tax-deductible costs will be subject to this special tax.
5. Thin capitalisation
The provisions regarding the limit on debt financing costs have been clarified. A taxpayer will be able to recognise as deductible costs PLN 3 million of such costs or 30% of tax EBITDA, depending on which amount is higher.
6. Transfer pricing
There is a retroactive repeal of the regulations on indirect transactions with entities in tax havens, which imposed excessive counterparty verification obligations on Polish companies.
Furthermore, the documentation thresholds for transactions carried out directly with tax haven entities have been increased – to PLN 2.5 million for financial transactions and PLN 500,000 for non-financial transactions.
7. ‘Estonian CIT’
From January 2023, 50% of expenses related to the use of personal cars will be considered as non-business (taxable) expenses if the car is also used for private purposes.
The minimum employment requirement (at least three persons) will also be met by an entity taxed with so-called Estonian corporate income tax (CIT) if the employees cooperating on the basis of a contract of mandate benefit from an exemption from taxation or an exemption from social contributions.
Several changes of a clarifying nature are also being introduced for tax payment deadlines and there are other changes of a formal nature, making this tax instrument even more attractive.
8. Hidden dividends
The provisions on hidden dividends – which, under last year's amendment to the Polish Corporate Income Tax Act, were due to come into force from January 2023 – have been repealed and will not come into force.
9. Controlled foreign companies
Under the amendment, when calculating the income of a controlled foreign company under Polish regulations, a Polish taxpayer should disregard any tax reliefs and exemptions that would apply if the foreign company were a Polish tax resident, especially a dividend or capital gains participation exemption.