From 1 January 2024, minimum rules for corporate income tax will come into force in accordance with Article 24ca of the CIT Act. This tax is intended to tighten the tax system and minimise the tendency to shift income from Polish companies to jurisdictions with a favourable tax regime. The purpose of the minimum tax is to tax entities that generate little or no income without good reason. The new tax can be applied to most companies that report operating losses.
When will the minimum tax be levied?
With effect from 1 January 2022, a minimum tax was included in the CIT Act. However, due to political and economic conditions, the legislator suspended this regulation until 31 December 2023.
Accordingly, the provisions on minimum corporate income tax from Article 24ca of the CIT Act will apply from January 1, 2024, on.
For taxpayers whose tax year does not coincide with the calendar year and begins before 1 January 2024 and ends after 31 December 2023, the exemption from the
minimum tax applies until the end of that tax year.
Who will be affected by the minimum tax?
The minimum tax will apply to:
- taxpayers who have their registered office or management in the territory of the Republic of Poland, which results in a tax liability on all income, regardless of where it is earned.
- tax capital groups
- taxpayers who conduct their business activity through a foreign permanent establishment located in the territory of the Republic of Poland
– who have suffered a business loss in the relevant tax year or whose share of income in revenue did not exceed 2%.
It is intended that certain groups of entities will be exempt from the application of the minimum income tax regulations.
The provisions on minimum tax do not apply, inter alia, to taxpayers:
- those starting a business (up to 3 tax years from its commencement),
- who are small taxpayers (annual turnover of no more than 2 million EUR),
- being a financial enterprise, a mining company, a municipal company,
- being a taxpayer in which the majority of revenue is generated in connection with the provision of health care services,
- that are in bankruptcy, liquidation or under restructuring proceedings
- whose shareholders or members are exclusively natural persons and in which the taxpayer does not hold an interest:
- directly or indirectly, more than 5% of shares in the capital of another company or all rights and obligations in a company that is not a legal entity,
- other property rights relating to the right to receive a benefit as a founder (trustee) or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature
- that are part of a group of at least two companies one of which directly or indirectly holds at least 75% of the share capital or shareholding of the other companies in the group during the entire tax year, if:
- the tax year of the companies covers the same period and
- the share of the total income of the companies in their total income, calculated for the tax year, is more than 2% whereby, all companies in the group that are taxable persons within the meaning of Article 3(1) or that belong to a tax capital group are taken into account when determining the conditions referred to in points (a) and (b)
Minimum tax rate
If the tax is due (if the criteria relating to the entity and the amount of the loss or income are met), the amount of the tax must be calculated.
This charge is 10% of the tax base, determined as one of the following:
1. the sum of the following amounts, i.e.:
- 1.5% of the value of the company’s income from the source of income other than from capital gains earned in the tax year;
- the costs of intangible services provided directly or indirectly for the benefit of related parties or from tax havens or the costs of acquisition of specific services or intangible rights, if their value exceeds PLN 3 million, and 5% of the tax EBIDTA;
- the amount of debt financing costs incurred for the benefit of related parties that exceed 30% of tax EBIDTA;
2. an amount equal to 3% of the value of income earned in the tax year from a source of income other than capital gains. The taxpayer must notify this choice when submitting the tax return for the tax year for which the taxpayer has made this choice.
The tax must be paid together with the annual tax return. It is important to note that the amount of minimum income tax payable is reduced by the tax due for the same tax year calculated under the general rules. The deduction is made in the tax return during the following three tax years immediately following the year in which the taxpayer settled the minimum income tax.
If you have any questions regarding this topic or if you are in need for any additional information – please do not hesitate to contact us:
CUSTOMER RELATIONSHIPS DEPARTMENT
Head of Customer Relationships
Department / Senior Manager