The Polish New Order - changes to the flat rate on corporate income

The draft tax bill of the New Polish Order, sent for public consultation, includes, inter alia, simplification and clarification of the existing regulations on flat rate income and expansion of the catalogue of entities entitled to choose this system.

It should be noted that on 1 January 2021, regulations governing flat-rate income taxation came into force, and they were intended to increase the attractiveness of this form of taxation by, inter alia, linking taxable income to the categories of balance sheet law and modifying the basic principles of CIT taxation, as well as raising the limit of income earned from EUR 250 thousand to EUR 2 million.

This time, the proposed changes aim to allow a wider group of taxpayers, especially from the SME sector, to benefit from the flat rate on corporate income and thus to stimulate investment growth in the country. What specific changes regarding the flat rate await taxpayers, we explain in this publication.

The key changes to the flat rate on corporate income - Polish New Order:

• extension of the catalogue of entities entitled to flat-rate taxation by limited partnerships and limited joint-stock partnerships;
• the abandonment of the necessity to incur certain investment outlays as a condition for benefiting from the provisions on the flat rate, while retaining the possibility of incurring them in order to benefit from the preferential flat rate,
• the abandonment of the condition relating to the upper limit of income of taxpayers taxed on a flat rate, and consequently also of the surcharge of the tax liability,
• making the deadlines for paying the tax liability more flexible in terms of the so-called preliminary adjustment, and in some cases abolishing the obligation to pay this liability.

As a result of the amendments, the flat-rate tax on income earned by a partner - shareholder of a limited liability company, shareholder of a joint-stock company and a limited joint-stock partnership, as well as a limited partner and a general partner of a limited partnership - from the payments of the company's distributed profits earned during the period of flat-rate taxation on the corporate income, is to be reduced by:

• 75% of the amount corresponding to the percentage share of the shareholder in the company's profit, calculated as on the date on which the shareholder acquired the right to the distribution of the distributed profit, multiplied by the due flat rate on the companies' income from the distributed profit of the company from which the income was generated - for small taxpayers or taxpayers starting a business) or,
• 37% of the amount corresponding to the percentage share of the shareholder in the company's profit, calculated as on the date on which the shareholder acquired the right to the distribution of the distributed profit, multiplied by the flat rate payable on the companies' income from the distributed profit of that company from which the income was generated,
• for other taxpayers, an amount corresponding to the percentage share of the shareholder in the company's profits, calculated as on the date on which the shareholder became entitled to the distributed profits payment, multiplied by the flat rate payable on the company's distributed profits from which the income was generated.

Moreover, for the payments of the distributed profits by a company being a taxpayer of flat rate on corporate income other than a small taxpayer or other than a taxpayer commencing business activity, which incurred a certain level of investment outlays in a given period and acquired the right to a 5% reduction of the flat rate on the payment of distributed profits the deduction of personal income tax is to amount to 51% of the amount corresponding to the percentage share of the shareholder in the company's profit, calculated as on the date on which the shareholder acquired the right to the distribution of distributed profit, multiplied by the due flat rate on the companies' income from the distributed profit of the company from which the income was generated.