Poland

Overview

The current political discussion in Poland focuses on the war started by Russia in the neighboring country Ukraine, which has triggered the energy crisis, economical and social challenges, as well as accelerated the rise of inflation and interest rates. In order to tackle increasing inflation, various forms of reliefs have been introduced under so-called anti-inflationary shield and energetical shield, having impact i.a. on indirect taxes on specified goods consumed by individuals in 2022 and 2023.

On 1 January 2022, new changes in the tax area, which are part of the so-called "Polish Deal", came into force. The new regulations made a significant impact on business activity taxation. These regulations considered multiple areas including CIT and investments, PIT, tax reliefs, transfer pricing, VAT, technology in taxes, international taxes, and mergers and acquisitions.

On 1 July 2022, the amendment entered into force, changing the provisions retroactively from January 2022 (so-called Polish Deal 2.0). The changes concerned the area of PIT and assumed, inter alia, reduction of PIT tax from 17% to 12%, elimination of the tax relief for the middle class and changes in the health insurance premium.

On 25 October 2022, the subsequent amendment was published, introducing changes to tax regulations, mainly concerning CIT in the areas introduced by the Polish Deal (so-called Polish Deal 3.0).

Changes in corporate income tax (CIT)

Modification and postponement of the entry into force of the minimum income tax regulations

A ‘minimum income tax’ was initially introduced as of 2022 for all entities subject to CIT (including tax capital groups) whose share of income in revenues (other than from capital gains) calculated for tax purposes is less than 1% or which made a loss for a given tax year. The ‘minimum income tax’ rate is 10%.

The provisions would not apply, inter alia, to financial enterprises, start-ups, and taxpayers who recorded over 30% decrease in revenues.

The amount of the minimum tax paid for a given tax year may be deducted from the due CIT calculated using the traditional method for the consecutive three tax years immediately following the year for which the taxpayer has paid the minimum income tax. However, a key subsequent change in the provisions on minimum corporate income tax regulation is suspension of its application for a period of 2 years, i.e. from 1 January 2022 to 31 December 2023.

The changes also relate to the structural elements of minimum tax, specifically by:

• increasing the profitability ratio to 2%, while changing the methodology for its calculation (including the extension of exemptions that allow to increase effective profitability and avoid the minimum tax);
• introducing an alternative, simplified method of determining the tax base (3% of the value of operating revenues).
• introducing a deduction from the tax base of revenues from SEZ operations and factoring;
• extension of the catalogue of exemptions from this tax.

Changes in Controlled Foreign Company (CFC) regulations

As of 1 January 2022, the definition of a CFC has been changed by:

• extending to an entity whose co-owners owns at least 25% participation share and are Polish tax residents who no longer have to be related parties
• extending the scope of the so-called 'list of passive revenues'.

The test of the low effective income tax rate paid by the controlled entity has also been changed, by increasing it from 50% of the standard CIT rate to 75% of the standard CIT rate (hence the effective income tax rate condition determining the CFC status was increased from 9.5% to 14.25%).

Finally, two additional CFC definitions were added, introducing completely new conditions that must be examined in order to qualify as a CFC. These tests are related to the value of assets (i.e. shares in other companies, real estate, movable property, intangible assets, receivables) owned by a foreign entity.

Furthermore, the newly adopted law as of 2023 introduced provisions clarifying definition of a subsidiary entity, rules for CFC income determination and the premise of a high profitability of the foreign entity in relation to its assets.

Changes of the tax on so-called diverted profits

On 1 January 2022, the provisions on the so-called "diverted profits" came into force. The aim of those provisions is to eliminate the possibility of obtaining tax benefits through the transfer of profits to a tax jurisdiction with a marginal effective tax rate. The new regulations on diverted profits replace the repealed provisions on the limitation of costs incurred towards related entities (article 15e of the CIT Act).

The tax on diverted profits is not applicable if the recipient conducts real economic activity in one of the European Union (EU)/European Economic Area (EEA) countries.

The Act of October 7, 2022 amending, among others, the CIT Act, also introduced further changes to the provision on diverted profits that apply as of January 1, 2023. Some of the introduced changes were defined as clarifying ones. As a result, it seems reasonable to consider the impact of the amendments not only on future but also on current settlements, i.e. for the tax year 2022.

The major changes as of 1 January 2023 are as follows:

• provisions in force from 2023 clarify that costs qualified potentially as diverted profit (“qualified costs”) should be incurred for a non-resident related entity and treated as tax-deductible by the Polish taxpayer,
• the legislator clarified that “diverted profits” constitute tax deductible costs, however it is not clear whether this change should be taken into account while examining conditions for 2022;
• the condition of low taxation (14,25%) at the level of the related entity for which the cost is incurred applies only to a specific type of income of this entity from one of the individual titles listed in qualified costs list, e.g. income from interest, consulting services or royalties;
• starting from 2023, only qualified costs incurred towards related entities should be taken into account when calculating qualified cost ratio 3%;
• the burden of proving that a given expense does not meet the definition of diverted profit will rest on all Polish taxpayers making payments to foreign related entities;
• the amendment to the CIT Act also introduces the obligation to examine whether the entity to which the related entity further transfers the payment from the Polish taxpayer, meets the relevant conditions for recognizing the payment as diverted profit.

Changes in the Polish withholding tax regulations (WHT)

As part of the Polish Deal, starting from 2022 the pay and refund mechanism should apply if the following conditions are jointly met:

• a ruling (binding opinion) on the application of reduced rates / exemptions is obtained, or
• a certification process is carried out by the payer, which is concluded with the submission of a remitter's declaration.

The further amendment enabled the modification of the withholding tax collection mechanism. The structure of the remitter's declaration exempting the pay & refund mechanism became more flexible by extending the time scope. The submission of a declaration allows this mechanism not to apply until the end of the remitter's tax year - including the declarations submitted in 2022. Changes also included the exemption from the application of certain obligations of payers with respect to withholding taxation of interest and discount on certain securities.

New Polish holding company tax regime

The benefits from conducting business activity under the Polish holding company tax regime introduced as of 2022 cover:

• exemption from taxation of capital gain from the sale of shares in subsidiaries (not real estate companies) to an unrelated entity, and.
• an exemption from WHT on 95% of the amount of dividends paid to this holding company by subsidiaries (meeting certain specific conditions).

Payments qualified as passive and exceeding PLN 2 million per year that are made to related entities will be able to benefit from reduced rates or exemptions at source, provided that:

• a ruling (binding opinion) on the application of reduced rates / exemptions will be obtained, or
• a certification process will be carried out by the payer, which will be concluded with the submission of a designated statement.

By means of the amendment adopted in October 2022, the rules were clarified and improved in a way that allows a larger group of entrepreneurs to benefit from the holding regulations. Therefore, the following solutions were implemented:

• extension of the holding regime also to multi-level structures;
• clarification of the provisions on the determination of the ownership of shares (stocks) in subsidiaries, including the extension of the period of this ownership from one to two years;
• extension of the catalog of legal forms in which a holding company may operate by adding a simple joint-stock company;
• allowing a holding company to benefit from the CIT exemption of dividends resulting from the Parent Subsidiary Directive;
• possibility for a domestic subsidiary entity to benefit from an exemption in a special economic zone (SSE) or the so-called Polish Investment Zone (PSI);
• introduction of 100% dividend exemption (replacing 95% dividend exemption).

Changes of the lump-sum tax on companies’ income (so called Estonian CIT)

The amendment provided a change to the method of income determination in the case of the use of assets (e.g. passenger cars) for business and other non-business purposes (the rule of 50% of expenses increasing taxable income). The deadline for paying the tax was also extended to the end of the third month of the tax year following the year in which the profit was distributed (i.e. a resolution was adopted on the division or coverage of the net financial result or the net profit income was distributed). Compared to previous regulations, they assumed the expiry of the deadline on the 20th day of the seventh month of the tax year in which the resolution was adopted, or on the 20th day of the month following the month in which the income from net profit was distributed.

Changes of the rules on documenting transaction with tax havens (transfer pricing)

The changes were aimed to: 

• increase the materiality thresholds for direct transactions with tax havens, which, if exceeded, raise documenting obligations;
• fully revocate the documenting obligations in indirect transactions with tax havens (effective from 2021).

Removal of 'hidden dividend' regulation

The 'hidden dividend' regulation, which was to come into force on 1 January 2023, was fully revoked. Significant doubts in terms of the interplay between the hidden dividend and transfer pricing provisions were cited as the reason for this decision. The demands of organizations indicating the need to limit anti-abuse rules that may apply to similar categories of payments were also accepted.

Changes in value-added tax (VAT)

National e-Invoicing System 

In the beginning of 2022, the National e-Invoice System was launched, which enables issuance of and access to structured invoices. In the initial period, structured invoices will function as one of the acceptable forms of documenting transactions, alongside paper and electronic invoices. Structured invoices as a mandatory solution are to come into force from 1 January 2024, however, subsequent versions of the amending act provide for further postponements (i.a. proposition to postpone the regulations until 1 July 2024).

The structured invoice is a record in xml format compliant with the logical structure of the FA(1) e-Invoice published in the Central Repository of Electronic Document Templates on the ePUAP platform.

According to the draft bill, the taxpayers having their registered office in Poland or fixed place of business in Poland will be obliged to issue and receive invoices through the National e-Invoicing System. This obligation will not apply to the taxpayers registered for the VAT OSS/IOSS procedure in another Member State and issuing invoices under the special procedures provided for in the VAT Act.

Mandatory e-invoicing will cover all activities subject to VAT in Poland, including domestic supplies of goods and services made between entrepreneurs (B2B), public authorities (B2G) or consumers (B2C). It is expected that the obligation will also apply to the corrective invoices to the original invoices issued outside the National e-Invoicing System (dedicated fields have been provided for this purpose in the new version of the xml scheme of structured invoice).

The draft bill also provides for the financial penalties for failing to comply with obligations related to mandatory e-invoicing. By decision of the head of the tax office, the taxpayer will be fined up to 100% of the amount of VAT shown on the invoice or up to 18.7% of the amount due on the invoice for invoices without the VAT shown. Additional fines will be applied for failing to issue e-invoice in accordance with the provided template or failing to send e-invoice to the National e-Invoicing System on time..

SLIM VAT 3

In the middle of 2022, a draft bill (the so-called SLIM VAT 3 package) aimed at introducing further simplifications to the VAT Act had been published by the Polish government. The amendments provided in the draft legislation include inter alia:

• Simplification and unification of the rules of currency conversion for corrective invoices, i.e. both in plus and in minus corrections,
• Clarification of the regulations on reducing VAT sanctions by indicating the specific circumstances of the case that should be taken into account by the Authorities when imposing an additional obligation,
• Abolition of the obligation to agree the proportion/forecast of the pre-ratio with the head of the tax office in the form of a protocol in case of taxpayers conducting the so-called mixed sale and setting the initial proportion,
• Extension of the possibility to issue an invoice from 30 to 60 days before delivery of goods, performance of a service, or receipt of an advance payment.
• Liberalization of the conditions for faster VAT refund for the so-called non-cash taxpayers,
• Faster refund of the amount spent on the purchase of the cash register,
• Clarification of the rules of the TAX FREE system in the event that the traveler's tax refund in cash took place after the deadline for submitting the tax declaration,
• In terms of the provisions of the customs law - introduction of the national regulations concerning approved and designated places.

Most of the changes indicated above are intended to enter into force on 1 April 2023.

Central Electronic System of Payment information

In the middle of 2022, the Government Centre published a draft bill providing an obligation to keep electronic records of payment data for cross-border payments and to exchange these records with a newly established central EU-database, i.e. Central Electronic System of Payment information (so-called CESOP). The purpose of the new reporting obligation is to combat VAT fraud.

According to the draft, obligations are to be introduced for payment service providers, such as:

• Keeping quarterly records of payments and payment recipients for cross-border payment services,
• Keeping records for 3 years from the end of the fiscal year in which the payment was made,
• Making the records available to the Head of the National Fiscal Administration.

This project implements into the Polish legal order the provisions of Directive 2020/284. The implementation of the directive should take place by December 31, 2023. In accordance with a draft bill, the new provisions shall enter into force from January 1st, 2024

SLIM VAT 2

As of 1 October 2021 (partially as of 1 January 2022), the following provisions of the SLIM VAT 2 package, aimed at introducing simplifications to the VAT Act, entered into force:

• Removal of restrictions on issuing collective correction invoices,
  
• Taxpayers do not have to indicate the reason for correction of invoices,
• Cancellation of duplicate invoices,
• Extension of the possibility to issue an invoice from 30 to 60 days before delivery of goods, performance of a service, or receipt of an advance payment,
• Simplification of VAT deduction on cars used for business activity,
• VAT deduction on short-term trips related to the taxpayer's business activity,
• More complete neutrality in taxation of import of services,
• Regulation of the method of performing in-minus adjustment in case of import of services and VAT,
• Easier possibility to select taxation options in real estate transactions,
• Extension of the time limit for claiming bad debt relief from two to three years.

Taxation of financial services

From the beginning of 2022, the possibility to choose VAT taxation of selected financial services has been introduced. In particular, the change concerns financial intermediation, management of investment funds, granting credits and loans, granting of securities, guarantees and other collaterals for financial transactions, etc. However, this possibility has not been provided for insurance services. The decision on the choice of taxation will be binding for the taxpayer for at least two years.

VAT group

From January 1st, 2023, taxpayers will be able to form a VAT group. The main reason for this solution is that the entities included in it become one taxpayer for VAT purposes. Thus, the supply of goods or services performed between entities being members of the same VAT group shall not be subject to VAT. 

A VAT group may be formed by entities related financially, economically, and organisationally, which will conclude an agreement on forming a VAT group (the catalog of the entities that may create a VAT group has been extended during the legislative process - it was originally intended that the group might be formed by the entities creating tax groups for CIT purposes). A VAT group may be formed by taxpayers:

• having their registered office in Poland or
• not having the seat in Poland, but conducting business activity in Poland through a branch.

One entity can be a member of only one VAT group. A VAT group cannot be a member of another VAT group.

The consequence of the existence of a VAT group is the recognition that the supply of goods or services by an entity being a member of this group to an entity which is not a member of a group is considered to be made by that group to the entity outside of the group. This rule may also be applied in reverse, which means that the supply of goods and services to an entity being a member of a VAT group by an entity which is not a member of this group is considered to be made for this group.

The introduction of the provisions concerning a VAT group may be, therefore, particularly important for the entities conducting VAT-exempt/non-taxable activities and having a limited right to deduct tax. For these entities, intra-group purchases of services that have been taxed so far (in the absence of the right to deduct) will become neutral from the VAT perspective.

Retail tax

On 1 September 2016, the Retail Tax Act of 6 July 2016 entered into force, but was quickly suspended for 2016 and 2017 due to European Commission (EC) investigation into the Polish tax on the retail sector. After several postponements, this law came into force on 1 January 2021.

Based on the Retail Tax Act, retailers are to be taxed on the revenues achieved on retail sales, which should be understood as sales of goods to consumers for remuneration, in case an agreement is concluded on the business premises or away from business premises of the given taxpayer. Thus, e-commerce sales should not be subject to this tax. In this context, the services associated with retail sales should also be subject to taxation, unless they are recorded separately from the sale of goods.

Excise duty

Whilst this is not new tax per se, it is worth mentioning that Poland adopted Council Directive (EU) 2020/262 of 19 December 2019.

As such, starting from 13 February 2023, certain categories of excise duty susceptible products will fall under regulation to submit “e-SAD” when the goods are subject to intra-Community acquisition to Poland or are subject to intra-Community supply from Poland.

As such, entrepreneurs operating in Poland will be required to register for excise duty purposes in Poland.  

Similar systems should be adopted in every EU member country.

New tax reliefs

Changes in the R&D relief

From 2022, there is an increase of the existing R&D deductions in income taxes from 100% to 200% of qualified costs as a part of R&D tax relief incurred on employees that covers the costs of staff hired by taxpayers for R&D purposes.

Simultaneous Intellectual Property (IP) Box and R&D relief

As part of the Polish Deal, a taxpayer commercialising the results of R&D and obtaining qualified income from it within the meaning of the IP Box provisions has the possibility of deducting R&D relief from the IP Box income of eligible costs incurred to develop the right covered by the IP Box.

Innovative employees tax relief

The innovative employees tax relief is intended to support the innovativeness of Polish entities and will promote the employment of highly qualified workers. The mechanism is an extension of the existing R&D relief. According to the Polish Deal Act, taxpayers benefitting from R&D relief that had not been settled in the previous year will be able to deduct from advances for personal income tax (PIT) charged on the income (revenue) of individuals due to:

• service relationship, employment relationship, contract work, cooperative employment relationship
• services provided under a contract of mandate or contract for specific work, and
• copyrights.

The condition for the deduction will be that a given employee devotes at least 50% of the total working time directly to R&D activities in a given month. The deduction will be valid from the month in which the taxpayer submitted a tax return for a given year until the end of that tax year.

Relief for robotisation

Relief for robotisation was introduced for a period of five years and covers expenses from the beginning of the 2022 fiscal year until the end of the 2026 fiscal year. It will be available to both PIT and CIT payers investing in robotisation, regardless of the size of their operations. The relief will be a response to the needs of those companies that plan to modernise production plants, increase processing capacity, or reduce manual work as part of automation. Entrepreneurs will additionally be able to deduct 50% of the costs incurred for investments in robotisation.

The deduction is to apply in particular to: 

• purchase or financial leasing of new robots and cobots
• purchase of software necessary for the proper start-up of new fixed assets in the field of robotisation
• purchase of accessories (e.g. tracks, turntables, controllers, motion sensors, end effects)
• purchase of occupational health and safety (OHS) devices, and
• training costs for employees who will operate the new equipment.

The value of the deduction may not exceed the amount of income in a given tax year.

Relief for prototype

The prototype relief will allow a deduction from the tax base of 30% of the sum of the costs of the trial production of a new product and the launch of a new product, but the amount of the deduction cannot exceed 10% of the income earned from sources other than capital gains in a tax year. It is an extension of the already existing R&D relief, and its scope covers the stage after completion of R&D works but before mass production of the developed product.

The deduction is to be limited to selected costs, including:

• the purchase price or production cost of new fixed assets necessary to start trial production of a new product
• purchase costs of materials and raw materials purchased solely for the purpose of trial production of a new product
• costs of improvement incurred to adapt the fixed asset to launch trial production of a new product
• research, expertise, and certification costs
• product life cycle studies, and
• environmental technology verification systems.

The costs incurred will be shown in the annual tax declaration with the possibility of their deduction in the next six years following immediately after the year in which they were incurred.

Relief for expansion

The main purpose of the tax relief for expansion is the possibility of an additional deduction of the value of expenses related to the increase in revenues from the sale of products. The product may be an item already produced by the taxpayer or an item not yet offered by the taxpayer and not yet offered in a given country.

The relief may be settled on an ongoing basis, and the increase in revenues should be shown for two years, which requires monitoring of revenues obtained from products to which eligible costs were allocated.

Expenses for the expansion will be eligible for a two-fold deduction up to the amount of PLN 1 million in a given tax year.

The costs associated with increasing revenues from the sale of products are:

• participation in fairs (e.g. organisation, accommodation)
• promotional activities
• adaptation of packaging to the contractor's requirements
• preparation of documentation for the sale of products (e.g. certification of goods and registration of trademarks), and
• cost of tender documentation.

Relief for corporate social responsibility (CSR)

The CSR relief will be intended for all entrepreneurs, who will be able to deduct an additional 50% from the tax base for costs incurred for activities such as sports, culture, higher education, and science. The CSR relief will be deducted up to the amount of income obtained in the tax year. The new preference, similar to the R&D relief in force for several years, will be deductible in the tax return for the tax year in which the costs were incurred.

Eligible costs will include: 

• purchase of sports equipment, covering the costs of organising or participating in sports competitions, covering the costs of using sports facilities for the purposes of sports training, and financing sport’s scholarships
• costs incurred for sport’s events not being mass sports events
• costs incurred for the benefit of cultural institutions entered in the register of cultural institutions, as well as for financing cultural activities carried out by art academies and public art schools, and
• costs incurred for student scholarships for academic performance or sports and for research scholarships for doctoral students, costs of fees related to the education of an employed employee in studies, post-graduate studies and other forms of education, and costs of remuneration of students during internships work placements.

The tax relief will be deducted from the taxpayer's annual tax return, and the costs incurred for the tax credit will also be shown. In addition, the taxpayer will be entitled to additional income tax preferences by deducting half of the costs incurred from the tax base.

Relief for initial public offerings (IPOs)

The relief for IPOs allows for the deduction of costs incurred in the scope of the IPO. The relief for IPOs is aimed at supporting the process of raising capital as part of the first issue on the stock exchange. The relief for IPOs will be intended for Polish tax residents intending to issue shares in the IPO, making the company public by introducing its shares to trading on the stock exchange.

The catalogue of eligible expenses is closed and is divided into the following two categories:

• Expenses eligible for 150% of tax-deductible costs:
  • Preparation of the prospectus.
  • Notary, court, fiscal, and stock exchange fees.
  • Preparation and publication of advertisements required by law.
• Expenses eligible for 50% of tax-deductible costs (limit of PLN 50,000):
  • Advisory, legal, and financial services costs.

The expenses must be incurred directly for making the IPO, i.e. related directly and exclusively to the IPO, and incurred in the IPO year or in the preceding year, but not later than on the IPO date when the taxpayer introduced the shares to trading for the first time.

Relief for consolidation

The taxpayer who bears the eligible expenses for the acquisition of shares in a capital company has the right to reduce its tax base by these expenses in the year in which they are actually incurred, while meeting the following conditions:

• The company whose shares are acquired has its registered office or management board in the territory of the Republic of Poland or in a country with which the Republic of Poland has concluded a double taxation agreement.
• The main activity of the company whose shares are acquired is the same as the subject of the taxpayer's activity, or the company's operations may be considered to support the taxpayer's activities, excluding financial activities.
• The main activity of the company whose shares are acquired is conducted at least 24 months prior to the acquisition of the shares.
• Within 24 months prior to the acquisition of the shares, the company and the taxpayer were not related parties.
• The taxpayer is required to acquire shares in one transaction representing an absolute majority of voting rights (51%).

The maximum amount of the deduction in a tax year is PLN 250,000.

Eligible expenses subject to deduction include the following: 

• Legal services for the purchase of shares or stocks.
• Taxes charged directly on the transaction.
• Notary, court, and fiscal fees.

The deduction of expenses related to the acquisition of another company will be due to the taxpayer in the tax year in which the taxpayer will acquire shares in that company and will apply to the amount of expenses incurred by the taxpayer in that tax year.