Poland

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

In practice, taxable income is calculated by adjusting the profit reported for accounting purposes. 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. 

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

Dividend income

Domestic dividend income

Dividends received from Polish residents (domestic dividends)  although fall under the capital gains basket, are subject to a 19% withholding tax (WHT), which is withheld and remitted to the tax office by the payer of dividends. Based on a participation exemption, however, 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).

The revenue arising from voluntary redemption of shares is not treated as a dividend for tax purposes and does not enjoy the benefits of the participation exemption (i.e. the method of redemption, whether voluntary or automatic, will matter).

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 proportionately against Polish CIT.

Additionally, dividends received from entities seated in the European Union (including Poland), 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. If a Polish company or a PE of a company from an EU/EEA member state located in Poland receives a dividend from a company seated in a non-EU/non-EEA country, it may deduct the tax paid on dividend profits out of which the tax was remitted. 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

Interest income is aggregated with Polish resident entity’s other taxable income. 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 by the Polish companies to non-residents are subject to withholding tax in Poland. The domestic 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 based on the DTT between Poland and the country of tax residence of interest recipient – provided that number of conditions (including beneficial owner status of a recipient) is met and properly documented.

Royalty income

Royalties paid to resident companies are taxed as ordinary income. Revenues related to copyrights and related rights, licenses, patents and know-how (including rental or disposal thereof), except for (i) revenues related to licenses directly related to revenues not included in ‘capital gains’ basket and (ii) rights created by the taxpayer - should be allocated to the capital gains basket.

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

Royalties paid by the Polish companies to non-residents are subject to withholding tax in Poland. The domestic 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 based on the DTT between Poland and the country of tax residence of interest recipient – provided that number of conditions (including beneficial owner status of a recipient) is met and properly documented.

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).