Poland

Taxable income is generally determined on the basis of a tax calculation, which in turn is based on the statutory books according to accepted accounting principles. In practice, taxable income is calculated by adjusting the accounting profit. The relevant adjustments are necessary due to differences between tax and accounting treatment of numerous revenue and cost items. As a result, the taxable base is usually higher than the accounting profit. 

The tax base for CIT purposes includes all sources of income, established individually for each source of income as the difference between taxable revenues and tax-deductible costs within a given source.

There is a separation of income/loss sourced from capital transactions (‘capital gains’) and from other income/loss sources (also referred to as income/loss from ‘operational activities’). Revenues and costs related to each ‘basket’ are disclosed separately. All revenues not included in the closed catalog of capital gains are classified as revenues from 'other sources' (i.e. revenues from operational activities).

Costs should be allocated to the basket to which the corresponding revenues are allocated (direct and indirect costs of a source). Costs that cannot be allocated to a specific revenue basket, should be allocated based on the proportion of revenues of each basket.

There is no possibility to set-off income derived from one ‘basket’ with loss borne in the other ’basket’. Thus, losses incurred in one 'basket' may be set-off only against taxable income from the same 'basket' (within certain limits in case of tax losses carried forward).

The rules for determination of taxable income do not apply to the so-called 'Estonian CIT' scheme, due to taxation of net (accounting) profit at the moment of its distribution (discussed in the Taxes on corporate income section).

Inventory valuation

Generally, the value of inventory shortages may be included as a tax-deductible cost only if they are not a result of taxpayers' negligence and they are properly documented (e.g. in a form of a protocol, including the reason and the extent of such damage). Other write-offs in the value of inventory are not recognised for tax purposes until the inventory in question is sold.

When inventory is lost or sold, a tax deduction is allowed for the costs incurred when the inventory was purchased. The methods acceptable for inventory valuation for tax (and accounting) purposes are standard cost, average (weighted) cost, first in first out (FIFO), and last in first out (LIFO).

Capital gains

There is no separate capital gains tax. 

Revenues and related costs are qualified to one of two baskets: 'capital gains' and 'operational activity'. Income (loss) from each of these baskets is disclosed separately. Apart from share/capital transactions, the capital basket will include royalties, license fees, and similar rights. 

Dividend income

Dividends distributed by Polish residents (domestic dividends), although they fall under the capital gains basket, are subject to a 19% WHT, which is withheld and remitted to the tax office by the payer of dividends. 

For the purpose of applying Polish WHT rules, the term ’dividends‘ should be understood as encompassing certain other revenues (incomes) from participation in profits of legal persons having their seat or management office within the territory of the Republic of Poland, including, among others, the income from liquidation of a company and the income from the redemption of shares (with the exception of gain from voluntary redemption). The revenue arising from voluntary redemption of shares is treated as a capital gain subject to the 19% CIT rate in Poland (if the gain is realised by a taxpayer from a non-treaty country or the treaty includes a so-called 'real estate clause'), but it does not enjoy the benefits of the participation exemption (i.e. the method of redemption, whether voluntary or automatic, will matter). 

The WHT rate on the dividend might be reduced based on the applicable DTT provisions (with regard to non-residents) or participation exemption rules (both to residents and non-residents).

Domestic dividend income

Based on a participation exemption, domestic dividends are not subject to the 19% WHT if the Polish beneficiary holds at least a 10% share in the paying company for at least two years (upon EU Directive-driven participation exemption, described below, or new Polish holding company tax scheme, described in the Group taxation section).

Dividend income from abroad

Generally, dividends received by a Polish corporate tax resident from a non-resident are treated as regular income and taxed at the standard CIT rate. CIT on such dividends withheld in other countries may be credited proportionally against Polish CIT.

Additionally, dividends received from entities seated in EU/EEA member states, or Switzerland, can benefit from CIT exemption if the Polish company owns, respectively, at least 10% (in respect to companies seated in the EU/EEA member states) or 25% (in respect to companies seated in Switzerland) in the share capital of the payer for two consecutive years (and certain other conditions are met).

Dividends received from non-EU/non-EEA member states may benefit from underlying tax credit. The deduction is only possible if the Polish company/company from EU/EEA, which PE is located in Poland, holds (for two consecutive years) at least 75% of shares of the dividend payer. The tax may be deducted in an appropriate proportion. Furthermore, the deduction is only possible if there is a DTT or other agreement concluded by Poland, upon which the Polish tax authority may exchange tax information with its counterparty.

Anti-avoidance regulations

The participation exemption on dividends and other profit-sharing payments does not apply to the legal transaction or series of legal transactions that, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage, are not genuine, having regard to all relevant facts and circumstances.

Based on the introduced provisions, a ‘not genuine’ legal transaction is such transaction that is undertaken in order to benefit from the tax exemption but does not reflect economic reality (i.e. it is not conducted for valid commercial reasons and its result is, in particular, transfer of shares’ ownership of the company paying the dividend or achieving, by this company, income [revenue] paid in the form of a dividend).

Interest income

As a general rule, interest income is aggregated with income from operational activities; however, in certain cases, interest should be allocated to the capital gains basket (e.g. interest resulting from the loan, used to finance acquisition of shares).

Payments of interest (or capitalisation thereof to loan principal/set-off) made to non-residents are subject to WHT in Poland. The WHT rate applicable to interest is 20%. WHT exemption or a reduced WHT rate may apply, either based on the Polish tax law implementing Interest-Royalties Directive or on the DTTs (see the Withholding taxes section for details).

Royalty income

Revenues related to copyrights and related rights, licences, patents, and know-how (including rental or disposal thereof) should be allocated to the capital gains basket,  except for (i) revenues arising from licences directly related to revenues not included in ‘capital gains’ basket and (ii) rights created by the taxpayer. Any other royalty income also falls to the income/loss from ‘operational activities’. 

The Innovation Box scheme reduces, to 5%, the tax rate applicable to income derived from IP rights (see Innovation Box in the Tax credits and incentives section).

Royalties paid to non-residents are subject to WHT in Poland. The domestic WHT rate applicable to royalties is 20%. WHT exemption or a reduced WHT rate may apply, either based on the Polish tax law implementing Interest-Royalties Directive or on the DTTs (see the Withholding taxes section for details).

Foreign income

Resident corporations are taxed on their worldwide income unless there is an applicable DTT in place between Poland and the relevant country that provides that the foreign income shall be exempt from taxation in Poland (see Foreign tax credit in the Tax credits and incentives section).

Controlled foreign company (CFC) rules entered into force as of 1 January 2015 (see Controlled foreign companies [CFCs] in the Group taxation section for more information).