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Polish Deal 2022 SME Info 2021-01
1 Amendments to the Entrepreneur’s Act introduced by the Polish Deal
1.1 New cash payment limit for B2C transactions
A consumer is obliged to make payments via a payment account if the single value of the transaction with the entrepreneur, regardless of the number of resulting payments, exceeds PLN 20,000.
The sanction for failure to comply with this obligation is the imposition of CIT on both the sales revenue and the amount collected from the consumer in the form of cash.
1.2 New cash payment limit for B2B transactions
Making or receiving a business-related payment is done through the trader’s payment account whenever:
- ) another trader is a party to the transaction from which the payment results, and
- ) a single transaction value, regardless of the number of resulting payments, exceeds PLN 8,000 (currently PLN 15,000) or an equivalent of that amount in a foreign currency.
The sanction for non-compliance with this obligation is the lack of the right to include in the tax bill the cost in the part in which the payment concerning the B2B transaction was made without the intermediation of a payment account.
1.3 Obligation to enable payments with a payment instrument
The trader who is obliged to keep records of sales using cash registers shall ensure that payment can be made at any place where business activities are actually carried out, using a payment instrument.
A business that fails to comply with this obligation is temporarily limited in its right to certain preferences concerning VAT settlements, including in particular the right from quarterly VAT settlements and VAT refunds within 25 days.
1.4 Obligation for the entrepreneur to ensure cooperation of a cash register with a payment terminal
To come into force as of 01.07.2022
Applicable to entrepreneurs who are obliged to keep records of sales using online and virtual cash registers connected to the Central Repository of Cash Registers.
Penalty – a fine of PLN 5000.
2 Changes in CIT introduced by the Polish Deal
2.1 Changes in the definition of tax residency for CIT taxpayers
From 2022, there is a real risk that a foreign business entity will be considered a Polish resident if:
- the foreign entity (subsidiary) is registered by a Polish resident in the territory of another country;
- the foreign entity (subsidiary) does not conduct actual business operations in the territory of that other country (“conduit company”, “letterbox company”);
- Polish resident conducts in an organized and continuous way current affairs of this foreign entity (subsidiary) on the basis of, in particular:
- an agreement, decision, court ruling or other document regulating the establishment or operation of that taxpayer, or
- powers of attorney granted, or
- connections between related entities, i.e. capital, personal, family relations
- a dependent representative or proxy of a foreign entity conducts in an organised and continuous manner current affairs of that foreign entity in the territory of Poland on the basis of, in particular:
- an agreement, decision, court ruling or other document regulating the establishment or functioning of that taxpayer, or
- powers of attorney granted, or
- connections between related entities, i.e. capital, personal, family relations.
2.2 New regulations regarding “thin capitalisation”
Additional financial burden for companies using debt financing:
constitutes a new limit on the excess cost of debt financing is 30% of tax EBITDA, but no more than 3 million.
2.3 CIT taxation of “pass-through income”
As of 01.01.2022, an additional financial burden has been introduced for companies that incur costs for the benefit of related parties by taxing “pass-through income” with CIT at the rate of 19% of such income.
Pass-through income is considered to be costs incurred directly or indirectly for the benefit of a related party of the company representing a receivable of that party, if:
- the income tax actually paid by that related party for the year in which it received the receivable, in its country of residence (board of directors), is 25% less than the amount of income tax that would have been payable by it if the income of that party had been taxed at 19%, and
- those costs have been:
- included as a deductible expense, deducted from income or tax of that related party, or
- paid by that related party as dividends or other income from a share in the profits of legal persons for the year in which it received the payment
and those costs represented at least 50% of the value of the income received by that entity, and
- if the sum of the costs incurred in the tax year for the benefit of entities, including unrelated entities, represents at least 3% of the sum of the costs deducted.
Costs constituting pass-through income include:
- costs of intangible services, including advisory services, market research, advertising services, management and control of data processing, insurance, guarantees and warranties and services of similar nature
- fees and charges for the use of, or right to use, rights or intangible assets
- risk transfer of a debtor’s insolvency under loans other than those granted by banks and cooperative savings and credit unions
- costs of debt financing
- fees and remuneration for the transfer of functions, assets, or risks.
The provisions on pass-through income shall not apply to the extent that the costs are incurred to a related party
- subject to taxation on its entire income in a Member State of the European Union or EEA
- engaged in substantive business activity in that country.
2.4 The new Estonian CIT
From 01.01.2022 Estonian CIT will become an even more attractive form of conducting business due to the fact that effective taxation of partners of such a company (total CIT of the company and PIT of the partners) will be:
- 20% for small taxpayers
- 25% for bigger CIT taxpayers.
- a company taxed with Estonian CIT will not have to pay the so-called minimum tax
- Estonian CIT will be available for large entities because the income limit was abolished
- Estonian CIT will be available for most forms of business activity (except for sole proprietorships)
- a company taxed according to Estonian CIT rules will not have to incur capital expenditures.
The conditions which will still determine the possibility of using the Estonian CIT form of taxation are as follows:
- only natural persons may be shareholders of the company
- the company has no capital involvement in other entities
- the company generates operating income higher than passive income
- employing a certain minimum number of persons (3 persons)
- time limitation in the choice of this form of taxation in the case of certain companies involved in restructuring
- the need to pay (or defer payment of) the conversion tax in the case of companies that change their form of taxation to Estonian or make acquisitions.
2.5 A new minimum income tax
The new minimum tax applies to :
- limited liability companies, joint stock companies, limited partnerships and limited joint-stock partnerships, including tax capital groups and general partnerships, which are CIT taxpayers
- companies which show a loss in their annual returns or whose share of income in revenue (other than capital gains) is 1% or less
The tax will amount to 0.4% of revenue plus 10% of the so-called excess costs.
So-called excess costs are:
- costs of debt financing above the limit specified in the Act
- costs of intangible services above the statutory limit
- the value of deferred tax due to the disclosure of unamortised intangible assets.
The new minimum tax will not apply to:
- start-ups (for the first three years)
- financial companies
- companies in temporary financial difficulty (30% decrease
- companies with a simple organisational structure
- companies of strategic importance to the Polish economy
- tax capital groups, in which one of the companies has a 75% capital engagement in the others and meets a certain profitability limit.
2.6 In-kind contributions of an enterprise or an organised part thereof
The act introduces an additional condition for exemption from CIT of a contribution in kind in the form of an enterprise or an organised part thereof.
An in-kind contribution will not be taxed provided that the company receiving it accepts for tax purposes the components of the enterprise or its organised part in the value resulting from the tax books of the contributing entity.
If this condition is not met, the transaction will be taxed for the contributor as the sale of the enterprise or organised part thereof.
2.7 Exclusions from depreciation – real estate companies
Real estate companies that:
- recognise property held for accounting purposes as investment assets,
- measure investment assets at market price or fair value, otherwise determined (i.e. they do not apply depreciation, but only reflect changes in the market/good value in their books)
as a result of a change in legislation, they will lose the right to depreciate real estate held for tax purposes from 01.01.2022.
2.8 Facilitation for the Tax Capital Group (TCG)
As of 1.01.2022, the following facilitations are introduced:
- reduction of the average threshold of the companies’ share capital to PLN 250,000.
- abolition of restrictions on mergers, transformations and divisions of companies forming TCG
- abolition of the condition determining the minimum profitability threshold for TCG
- the right to settle losses by a subsidiary during the duration of TCG
- no requirement to draw up an agreement in the form of a notarial deed.
2.9 Polish Holding Company (PHC)
As of 1.01.2022, the institution of a Polish Holding Company is introduced, which can benefit from the following exemptions:
- tax exemption of dividends up to 95% of the dividend amount
- tax exemption of dividends up to 95% of the dividend amount available to investors from the European Union and EEA after one year of holding shares (cancellation of 100% exemption after 2 years)
- dividend exemption also available to non-EU investors
- tax exemption of the transaction of disposal of shares (stocks) by a holding company in a subsidiary to an independent entity, provided that the subsidiary is not a real estate company.
The basic condition for taking advantage of the above preferences will be:
- possession by the holding company of at least 10% of shares in the subsidiary for at least 1 year
- not owning shares in companies having their seat or management board in “tax havens”, countries unwilling to cooperate in tax matters or countries with which agreements on exchange of tax information have not been ratified.
2.10 Interest on loans for equity transactions
Additional financial burden for companies:
- investing in other companies by acquiring shares / all rights and obligations,
- which have been recapitalised by shareholders by way of capital contributions or surcharges
is the prohibition, introduced to the CIT Act, to include in the tax account, the costs of debt financing concerning the financing of this type of capital transactions.
2.11 Limitation of the neutrality of the share exchange
Two additional conditions have been added:
- the shares (stocks) contributed by the shareholder have not been acquired or taken up as a result of a share exchange transaction or allocated as a result of a merger or division of entities;
- the value of the shares acquired by the shareholder, accepted for tax purposes, is not higher than the value of the shares contributed by the shareholder, which would be accepted for tax purposes if there was no exchange of shares. Failure to meet the aforementioned conditions will result in no right to apply the exemption from the exchange of shares.
2.12 The definition of a Controlled Foreign Company extended
New premises constituting a controlled foreign company:
- holding by a Polish taxpayer of shares amounting to more than 50% of shares in the capital or more than 50% of voting rights in the management of the entity, when the Polish taxpayer holds these shares (voting rights) also with other “unrelated” taxpayers (Polish residents)
- exceeding the limit of the share of passive income in relation to the total value of assets held by the company (a “shell” company)
- above-standard” income not covered by the assets held
at the same time fulfilling other requirements concerning control, source of income and level of taxation.
2.13 Hidden dividend – legislation coming into force as of 2023
Additional financial burden – taxation with CIT of economic distribution of profit, (not being formally a dividend), in the form of costs incurred for the benefit of a related entity, referred to as a hidden dividend, i.e.:
remuneration for services dependent on profit
remuneration for the use of assets that were owned or co-owned by a partner (shareholder) or an entity related to the partner (shareholder) before the establishment of the taxpayer.
2.14 Tax amnesty – transitional lump sum on CIT income
The tax amnesty may apply to the taxpayer’s income that has not been fully objectively and fairly declared for taxation or has not been declared for taxation at all, provided that the taxpayer or payer voluntarily declares such income for taxation in the period until March 2023. The flat-rate tax will amount to 8% of the income.
The taxpayer will be able to take advantage of tax relief (deduction of 30% of the paid lump sum tax from the current CIT) if they make certain capital investments in Poland or the EEA.
2.15 New solutions concerning illegal employment of workers, i.e. employment in the ‘grey economy’ and failure to disclose part of the remuneration
Strict sanctions will be introduced for entrepreneurs (employers) who employ people without disclosing the employment, such as:
- additional tax income in the amount of wages paid illegally
- lack of possibility to include this remuneration to tax costs
- obligation to pay contributions and personal income tax
No consequences and tax burdens for the employed person in case of disclosure of this form of employment.
2.16 Amendments to withholding tax regulations
2.16.1 The right to confirm the taxpayer’s residence for tax purposes by means of a copy of the certificate of residence is introduced.
2.16.2 Withholding tax procedure – the “pay and refund” procedure
As of 2022, the “pay and refund” procedure will apply to:
- only passive receivables (e.g. dividends, interest, royalties)
- receivables exceeding the amount of PLN 2 million in the tax year for the benefit of the same contractor
- receivables paid to related entities which are not Polish tax residents.
2.16.3 Preference (exemption) opinion – subjective and objective scope
From 1.01.2022, the exemption opinion is replaced by a preference opinion on withholding tax.
The subject and object scope of the preference opinion:
- WHT exemptions for dividends and interest under the CIT Act
- exemptions and preferences provided for in double tax treaties (i.e. reduced withholding tax rates or exemption from withholding tax).
2.17 Innovation tax reliefs
2.17.1 Simultaneous R&D and IP Box relief
An additional tax benefit – the possibility of simultaneous utilisation of the R&D relief and the IP Box, i.e. the right to deduct R&D costs from the income from qualified property rights settled under the IP Box relief.
2.17.2 Prototype relief
Tax benefit – the right to deduct from the tax base 30% of the expenses (as defined in the PIT/CIT Act) incurred for its production (but not more than 10% of the income).
2.17.3 Industrial robotisation allowance
Tax benefit – the right to deduct from the tax base 50% of the costs of purchasing an industrial robot, as well as the expenses related to its installation, software and training of employees in its use.
2.17.4 Benefit for employment of innovative employees
Tax benefit – the right to deduct qualified costs of research and development activity (R&D activity) from advance payments on income tax deducted from income (revenues) from employment relationship or civil-law contracts obtained by innovative employees employed to perform R&D activity (in case the company performing R&D activity incurred loss or income lower than R&D costs).
2.17.5 IPO (Initial Public Offering) relief
Tax advantage for the company – right to deduct from the tax base 150% of the expenses directly related to the company’s IPO (for preparation of a prospectus, notary, court, stamp and stock exchange fees, as well as preparation and publication of announcements required by law), and 50% of expenditure on advisory, legal and financial services directly related to the issue, up to PLN 50,000 exclusive of VAT.
Tax benefit for the individual investor – abolition of tax on the profit from the sale of shares purchased as part of the IPO, provided that they are retained for a period of 3 years.
2.17.6 Venture Capital Relief
Tax benefit – right to deduct from the CIT tax base 100% of the expenses directly related to the acquisition of shares or stocks in an alternative investment company or a company in which an alternative investment company holds shares or stocks, but no more than PLN 250,000.
2.17.7 Consolidation relief
Tax benefit – right to deduct from the CIT tax base 100% of the expenses directly related to the acquisition of shares or stocks in a foreign capital company (limited liability company or joint-stock company), i.e. expenses for legal services, valuation, preparation of merger plans, audit, taxes, notary and court fees, etc., but not more than PLN 250 000. Expenditure on the price paid by the taxpayer for the acquired shares (stocks) and costs of debt financing related to such acquisition would not be deductible.
2.17.8 Expansion relief
Tax benefit – the right to deduct from the CIT tax base expenditures incurred to increase sales of products (participation in fairs, promotional activities, preparation of required documentation for sales or tenders), but not more than PLN 1 million.
2.17.9 Payment terminal relief
Tax benefit – the right to deduct from the CIT tax base expenditures for the purchase of a payment terminal and expenditures related to the handling of payment transactions using the payment terminal, but not more than:
- PLN 1,000 – for taxpayers obliged, in accordance with the VAT Act, to keep records of turnover with the use of registering cash registers
- PLN 2,500 – in the case of taxpayers exempt, in accordance with the VAT Act, from the obligation to keep records of turnover with the use of register cash registers.
2.17.10 Sponsoring relief – CSR relief (Corporate Social Responsibility)
Tax benefit – the right to deduct from the CIT tax base 50% of the costs incurred for investment in culture, sport, science and higher education.
2.17.11 Deduction for a separate investment fund
Abolition of income and capital expenditure limits for companies benefiting from this tax preference.
Tax benefit – inclusion in the tax account of the write-off to the investment fund (created from the profit of the previous year) at the time of payment of funds to the ring-fenced account, provided that these funds are spent for investment purposes specified in the Act.
3 Changes in VAT introduced by the Polish Deal
3.1 VAT group
As of 1 July 2022, it will be possible to choose the form of VAT taxation within a VAT group.
Companies forming a VAT group will have to meet certain criteria, in particular regarding economic, financial and organisational links.
Benefits of a VAT group:
- better management of VAT surpluses and refunds and thus better liquidity,
- simplification of settlements – one collective JPK_VAT file for the group instead of separate JPK_VAT files for individual companies,
- no VAT taxation on intra-group transactions,
- no obligation to apply the split payment method in the case of intra-group transactions,
- increased credibility of the company as a taxpayer.
3.2 The right to opt for VAT taxation of financial services which are indicated in the Act.
VAT taxpayers will be able to opt out of the VAT exemption and choose VAT taxation of certain financial services provided to companies (not consumers).
3.3 Faster reimbursement of VAT
Faster reimbursement of VAT within 15 days for “non-cash taxpayers” conducting sales through cash registers – where the share of payments received through payment instruments was not less than 80%.
4 Other CIT changes
4.1 Investor Assistance Centre in the Ministry of Finance
A Centre for comprehensive “one-stop-shop” services for large investors is established.
4.2 590 Interpretation (Investment agreement)
From 1.01.2022 the ability to apply for an interpretation regarding the tax consequences of making a significant investment (above PLN 100 million) in Poland is introduced.
5 Changes introduced by the Act on the National e-Invoice System (KSeF)
From 1.01.2022, the structured invoice is introduced into economic circulation as another of the acceptable forms of documenting transactions, in addition to electronic and paper invoices, and the National e-Invoice System (interface) is made available for issuing, making available and storing structured invoices.
Use of the KSeF system:
- in 2022 – optional
- from 2023– obligatory for all VAT taxpayers.
Preferences are introduced for taxpayers issuing only e-invoices (in accordance with the current logical structure) with regard to:
- the right to settle the corrections in minus on a current basis
- The right to a faster VAT refund within 40 days from the submission of the return
- no obligation to send invoices and JPK FA at the request of tax authorities
- No obligation to store e-invoices outside the KSeF system
- the streamlining of the process of making available or sending invoices to buyers in the event of obtaining the buyer’s consent to communicate via KSeF.
6 Changes regarding transfer pricing documentation
The amended regulations include:
- inclusion of the statement on preparation of transfer pricing documentation and marketability of the applied prices in the transfer pricing information (TPR form)
- changes in the scope of persons authorised to sign the transfer pricing information (TPR)
- when the entity is managed by a multi-person authority – it may be a designated person from this authority or proxy
- new obligatory elements were added to transactions with entities from tax havens (description of expected tax and economic benefits, description of circumstances and economic reasons for concluding the transaction)
- types of transactions excluded from the obligation to prepare Local File documentation have been expanded to include the following cases:
- transactions between foreign establishments based in Poland, the parent entities of which are related entities, as well as between a foreign establishment based in Poland of a non-resident related entity and a related entity with tax residency in Poland
- transactions covered by tax treaty and investment treaty
- transactions covered by safe harbour mechanism for loans, credits, bonds
- so-called ‘pure reinvoicing’ transactions;
- elimination of the obligation to prepare a comparative/compliance analysis for controlled transactions concluded by taxpayers that are micro/small enterprises and for transactions other than controlled transactions concluded by taxpayers with an entity from a tax haven
- Increase in penal and fiscal penalties for failure to submit, or late submission of the Local File documentation and transfer pricing information (TPR)
- extension of deadlines for preparation of documentation:
- Local File (10 months after the end of the tax year)
- transfer pricing information (TPR – 11 months after the end of the tax year)
- submission of documentation upon request (14 days after request).
7 Amendments to the Act on the National Revenue Administration*
The act on (*in Polish) Krajowa Administracja Skarbowa or “KAS” introduces:
- the KAS officers will have the right to perform verification activities (referred to as verification acquisitions) as to whether taxpayers comply with the obligation to register their turnover on a cash register,
- the Head of KAS may inform taxpayers of the risk of participating in carousel fraud or call upon taxpayers to verify whether the reduced WHT rate has been applied correctly or not
- the institution of temporary seizure of movable property in order to secure public-legal receivables pursued by enforcement authorities.
Download the designed pdf copy of Polish Deal 2022 – SME Info 2021-01
The purpose of SME INFO is to provide general information and to draw the attention to the current changes in law which we believe to be important for the business operation of our clients. It is not a replacement for careful review of the acts and rules and the consultation with your tax advisor.
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