Changes in income taxes as from 2021

Ilona Twardowska, Tax Specialist
Last week, two draft bills on income taxes were submitted to the Sejm. They provide for many significant changes, especially with regard to limited partnerships or the so-called real estate companies, but they also introduce new solutions such as the so-called 'Estonian CIT', i.e. a lump sum tax on the income of capital companies. Below we present the most important of these changes.

Limited partnerships and selected general partnerships as CIT taxpayers

Under the draft amendment to the CIT Act, a limited partnership will also be a CIT taxpayer as from 1 January 2021. The profit paid to the general partner will be subject to a lump-sum income tax at the rate of 19%. However, the general partner will be able to reduce the lump-sum income tax on the dividend by a part of CIT paid by the limited partnership (according to the share in the profit of the limited partnership). The draft provides for an exemption (under certain conditions) in the amount of 50% of the revenue obtained by the limited partner, but no more than PLN 60,000 of such revenue per year.

General partnerships are also to be covered by CIT, but only if the taxpayers who pay income tax and participate in the profits of the general partnership are not disclosed. The general partnerships will be obliged to provide information about partners who have, directly or through other entities with no income tax obligations, rights to participate in their profits.

Estonian CIT

CIT taxpayers will be able to benefit from a deferral of CIT taxation of the profit of a capital company if the profit generated is retained in the company. This means that the company will pay CIT only when the profit is distributed to its shareholders.

Benefiting from the lump sum will be possible under the assumption that, inter alia: the company achieves a maximum of PLN 100 million of revenue per year (including the amount of VAT due), employs at least 3 persons, the company's shareholders are natural persons only, and the capital expenditure on fixed assets will be increased by 15%.

Changes in the taxation of the sale of real estate companies

The draft bill transfers the obligation to settle tax on the sale of shares in a real estate company to a real estate company. The definition of a real estate company will also be changed - under which it is an entity, including a non- company entity, whose assets having market value in any period of 12 consecutive months consisted of at least 50% of real estate situated in the territory of Poland or rights to such real estate.

Moreover, there will be an obligation to appoint a tax representative by a real estate company with no registered office or Management Board in Poland.

Companies will make their tax policy public

The obligation to publish the tax policy will apply to taxpayers whose revenues exceed EUR 50 million in a given tax year, or if they are a tax capital group or are part of it or a real estate company.

The report on the implementation of a tax strategy is to address various tax issues and to include an open catalogue of information. For failure to meet this obligation there will be a fine of up to PLN 1 000 000.

Taxation of the transfer of tangible liquidation assets

The draft bill provides also for an amendment to Article 14a of the CIT Act, specifying that the transfer of the tangible assets to be liquidated shall also be taxed in accordance with the rules set out in that provision. At present, the wording of the provision leads to a dispute between authorities and administrative courts.

Reduction of the option to settle losses resulting from restructuring operations

The right to settle losses in a situation in which the taxpayer has taken over another entity or a contribution in kind in the form of an enterprise or an organised part of an enterprise or made a cash contribution for which the taxpayer has acquired an enterprise or an organised part of an enterprise is to be limited.

Changes in transfer pricing documentation

The proposed amendments extend the obligation to apply the market price principle if the beneficial owner is located in a "tax haven". Moreover, the exemption from the obligation to prepare documentation for a wider range of domestic transactions will apply and the requirements for signing the declaration will be relaxed.

Tightening the rules on tax depreciation, in particular for entities exempted from income tax

The draft bill restricts the possibility to apply reduced or increased depreciation rates by taxpayers whose income earned is exempted from income tax, e.g. on the basis of an exemption provided for in the SEZ. This will apply to tangible and intangible assets which will be entered in the register after 31 December 2020.

The threshold of 9% CIT raised to EUR 2 million

Under the draft bill, the limit of revenue entitling to benefit from the reduced 9% CIT rate will be increased from EUR 1.2 million to EUR 2 million.

Changes in the PIT abolition relief

The draft bill provides for a reduction in the use of the abolition relief for persons working abroad by decreasing the limit for the deduction of the relief referred to in Article 27g of the PIT Act to an amount not exceeding the amount reducing the tax, i.e. PLN 1360. Therefore, the use of the relief will be limited and will increase the burden on Polish residents who obtain income abroad and settle tax under the proportional deduction method.

The exemption from commercial property tax will be extended

The legislator still wants to exempt taxpayers from commercial property tax in a situation in which the state of the epidemic in the Republic of Poland remains in force after 31 December 2020.

Greater possibility to use lump sum from the registered income

The aim of the changes to the lump-sum income tax law is to make lump-sum taxation more attractive and to expand the group of taxpayers. Therefore, the amended regulations provide for an increase in the limit of income from EUR 250 000 to EUR 2 million and the definition of the so-called freelance professions is to be changed.

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Agata Nie┼╝ychowska
Agata Nie┼╝ychowska
Tax Director

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