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CIT - Corporate Income Tax '10

 


1. Introduction

The corporate income tax (CIT) is, besides VAT, the most important tax levied on activities of legal persons in Poland. This is a flat-rate tax, generally imposed on income.

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2. Tax rates

The basic corporate income tax rate is 19% of the tax base. In special cases the CIT Act provides for other tax rates [1].

19% tax rate is also applicable to incomes from dividends and other incomes (revenues) from participation in profits of legal persons having their seat in Poland.

For taxpayers with unlimited tax liability in a EU Member State, an exemption from the withholding tax on dividends paid out by Polish companies is provided (participation exemption). The application of the above-mentioned exemption is possible if the foreign shareholder holds or will hold minimum 10% of shares in the Polish company during the period of at least 2 years.

In case of dividends gained from abroad Polish tax provisions provide for two exemption methods: participation exemption (relating to income generated in EU Member State, another EEA Member State, and Switzerland) and underlying tax credit (regarding states other than EU, EEA Members and Switzerland with which Poland has a valid double tax treaty).

Participation exemption is applied if the Polish company has held at least 10% capital participation in the foreign subsidiary for an uninterrupted period of at least 2 years. However, the required minimum participation of a Polish parent company in a Swiss company is 25%.

The tax actually paid by a foreign company on the part of its profits from which a dividend was paid can be credited– up to some limit against income tax payable by the Polish parent company in Poland (underlying tax credit). To apply the underlying tax credit, the Polish recipient shall hold at least 75% of the capital in the company paying dividends. Notwithstanding the above the Polish recipient of dividends from abroad can also – up to the limit – credit the withholding tax paid abroad against tax payable in Poland.

As of July 1st, 2013, on certain conditions, a total exemption from withholding tax will also refer to interest and royalties transferred from Poland to related companies from the EU. At present, the withholding tax rate in the circumstances in which finally the exemption shall be applicable accounts for 10%, and in the period from July 1st, 2009 until June 30th ,2013 it will account for 5%.

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3. Subject of taxation

The entities subject to the corporate income tax are as follows:

  • legal persons (in particular: limited liability companies, joint-stock companies, capital companies in organisation);
  • partners being legal persons;
  • foreign partnerships, if in the state where their seat is located they are treated as legal persons and are subject to unlimited tax liability there;
  • tax capital groups [2].

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4. Object of taxation

Generally, the corporate income tax is imposed on income, irrespective of the source of revenue from which the income has been earned.

Entities having their seat or management in Poland are subject to taxation with respect to their global income irrespectively of where it was generated (unlimited tax liability). The other entities are subject to taxation in Poland only with regard to income generated in Poland (limited tax liability).

The income is considered to be the surplus of total revenues over tax deductible costs gained in a tax year. If tax deductible costs exceed the amount of revenues, the difference constitutes a loss.

Tax losses incurred in previous tax years may reduce a taxable income of a taxpayer. A loss may be carried forward for 5 years following the year in which it was incurred, however the amount deducted in a given year shall not exceed 50% of the loss value (i.e. the shortest period of a one year loss settlement is 2 years) [3].

A tax year is defined as a calendar year. However, after meeting certain criteria specified in the CIT Act, a taxpayer may decide that the tax year is a period of other 12 consecutive calendar months.

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5. Revenues

The following items (among others) are considered to be revenue:

  • money and monetary values received, including also foreign exchange rate differences,
  • value of non-monetary benefits and revenues in-kind received,
  • value of debts which were redeemed or prescribed,
  • value of the paid off debts, which were previously written off as irretrievable or redeemed and recognised as tax deductible costs,
  • in case of VAT reduction or refund – input VAT in its part corresponding to the amount previously recognised as a tax deductible cost.

In case of business activity a revenue due even if not yet actually received generally constitutes taxable revenue after exclusion of the value of goods returned as well as rebates and discounts granted.

The date of receiving revenue from business activity shall be deemed the day of:

  • releasing a thing, transfer of a property right or provision of a service or a partial provision of a service but not later than the day of
  • issuing an invoice or
  • receiving the payment.

The list below presents examples of items which are not considered revenues for tax purposes:

  • advance payments received or amounts accounted for the future provision of goods and services which are to be performed in the next reporting periods,
  • revenue received for establishment or increase of share capital,
  • additional payments contributed to a limited liability company,
  • loans (credits) received or returned,
  • interests relating to receivables accrued but not received including interests on loans granted
  • output VAT,
  • returned, redeemed or desisted taxes and charges, which constitute revenues of the State Treasury or budgets of territorial self-governments units, if they had not been treated as tax deductible costs before,
  • refunded difference in VAT,
  • other returned expenses not being recognised as tax deductible costs.

Revenues in foreign currencies shall be expressed in PLN on the basis of the Polish National Bank’s average rate of exchange from the last working day preceding the day of receiving the revenue.

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6. Tax exemptions regarding object of taxation

A catalogue of tax exemptions regarding object of taxation includes inter alia the following items:

  • income received by taxpayers from governments of foreign states, international organisations or international financial institutions, deriving from non-returnable aid, including funds from framework projects regarding research, development and introduction of the European Union and from NATO projects,
  • income earned from economic activity carried on within a Special Economic Zone on the basis of an appropriate permit.
  • grants, subsidies and other gratuitous benefits received in order to cover costs or as costs’ refunds if the costs refer to fixed assets,
  • revenues gained abroad, if an adequate double tax treaty so provides.

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7. Tax deductible costs

In order to be recognised as tax deductible cost, an expenditure incurred by a taxpayer should jointly meet the following criteria:

  • the expenditure was incurred with purpose of generating income, retaining or protecting sources of income,
  • it is not listed in the catalogue of expenditures not being tax-deductible costs.

The revenue earning costs can be classified as direct costs or other costs.

As a rule, direct costs are deductible in the tax year in which the related revenue was earned. Other costs are deductible on the date they were incurred.

Tax deductible costs incurred in foreign currencies, should be converted into PLN on the basis of the average exchange rates of the National Bank of Poland from the last working day preceding the day the costs were incurred.

Since 1st January 2007 the new rules of calculating exchange rate differences are in force. According to the new law the exchange rate differences shall respectively increase revenues as foreign exchange rate gains or increase tax deductible costs as foreign exchange rate losses.

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8. Tax base

Generally, the tax base is considered to be income (defined as the excess of revenues over tax deductible costs), reduced by certain deductions made by the taxpayer during the tax year.

The tax base may be reduced by donations for public utility purposes and for religious purposes. The deduction in total may not exceed 10% of income.

Furthermore it is possible to deduct from the tax base 50% of expenditures for acquisition of new technologies from scientific entities. A new technology is defined as technology knowledge which has been in use for less than 5 years. The deduction does not impact the right to depreciate the acquired technologies.

In order to recognise given income as a tax base, a taxpayer is obliged to keep proper accounting records. If it is not possible to determine income (or loss) on the basis of records kept by a taxpayer, the income (or loss) shall be assessed by tax authorities.

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9. Collection of tax

In the course of the year taxpayers are obliged to transfer to the bank account of a tax office monthly tax advance payments in the amount of the difference between the tax due on the income earned from the beginning of the tax year and total advance payments due in preceding months. Monthly tax advance payments shall be remitted by taxpayers by the 20th day of each month for the preceding month. There is no obligation to submit monthly tax returns.

A final settlement of tax is deemed to be finalised on the day a yearly tax return is submitted by a taxpayer to the tax office and the tax due is paid. This should be done at the end of the third month of the year following the tax year at the latest [4].

The CIT Act provides for a simplified form of calculation and payment of the tax advance payments. Taxpayers are entitled to make monthly advance payments in the amount of 1/12 of the tax due, as calculated in the yearly tax statement for the year preceding given tax year. If there was no tax due in the said statement, taxpayers are entitled to make monthly advance payments in the amount of 1/12 of the tax due, as shown in the yearly tax statement for the year preceding by two years a given tax year.

The so-called “small entrepreneurs” who launch their business activities may benefit from the so-called tax credit. This is a relief consisting in deferral of tax on income generated in the first tax year. The taxpayer is also relieved from filing a tax return for that year. The tax due with reference to such income shall be paid by taxpayers in installments within the next 5 consecutive years.

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Glossary:

[1] One of the cases in question refers only to taxpayers with their limited tax liability in Poland, who earned inter alia the following revenues within the territory of Poland: from interest, copyrights or similar rights, rights to invention designs, trade marks and design patterns, know-how, or from other immaterial services (eg. advisory services, market research services, management and control services, guarantee and assurance services). As a rule, these revenues are subject to 20% tax rate, unless an appropriate double taxation treaty provides otherwise. Taxpayers with limited tax liability in Poland who receive due payments while acting as foreign sea trading companies, as well as those who earn revenues in Poland while acting as foreign air transportation companies, are subject to 10% tax imposed on these revenues, unless an appropriate double taxation treaty provides otherwise. It should be noted that application of the tax rate resulting from the appropriate double taxation treaty or non-collection of the tax according to the provisions of such treaty is permitted, provided that the tax residence of taxpayer is proved by the so-called certificate of tax residence, issued by appropriate tax authorities.

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[2] The tax capital group may be formed by a group of capital-related commercial companies having their seats in Poland. An average share capital of the companies may not be lower than PLN 1.000.000. The direct share of a “dominant company” in the capital of „dependent companies” must amount to 95%. The so-called profit index (i.e., the ratio of income to total revenue of the group) should account for at least 3%.

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[3] In the case of transformations (including mergers and divisions), except for transformations of commercial companies into another commercial companies, while assessing the taxable income, the losses of taxpayers subject to such transformation, merger, take-over or division are not taken into account; the same applies in the case of privatisation of State enterprises.

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[4] Additionally, within 10 days following the day the annual financial statements were approved, the taxpayer should submit the financial statements together with the audit opinion and the report of an entity entitled to examine financial statements (if the audit was necessary). The companies should also attach a copy of the resolution of the legal body approving the financial statements.

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Last update: January 2010


Prepared for the Polish Information and Foreign Investment Agency by:


Polish Investment and Trade Agency

Krucza St. 50

00-025 Warsaw


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