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Changes to CIT and PIT in 2021

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The Ministry of Finance is currently working on a draft amendment to the income tax acts, which will involve the reconstruction of the current system of business taxes. The changes include, inter alia, solutions concerning the taxation of limited and general partnerships, as well as an increase in the limit of revenue entitling to a reduced CIT rate. Adoption of the draft amendment by the Council of Ministers is expected in the third quarter this year.

The list of legislative and programme works of the Council of Ministers included assumptions to the draft amendment to the Act on Personal Income Tax, the Act on Corporate Income Tax, the Act on Lump Sum Income Tax on Certain Incomes Earned by Natural Persons and certain other acts.

The most important changes announced by the Ministry of Finance are: an increase in the limit of revenue from the current tax year for CIT taxpayers, the approximation of the rules for determining the amount of depreciation write-offs set out in the provisions of the CIT Act to those set out in the provisions of the Accounting Act, the introduction of the so-called Estonian CIT and CIT for limited and general partnerships.

The most important changes for businesses in 2021

The assumptions to the draft amendment, presented on September 4th this year, include a number of changes aimed at tightening the income tax system. The most important planned changes in corporate taxation include:

  • increasing to EUR 2 million from EUR 1.2 million the limit on revenue entitling to a reduced 9% CIT rate,
  • covering with CIT the limited partnerships which have their registered office or management board in Poland and general partnerships whose taxpayers participating in the profits are not disclosed,
  • introducing the so-called Estonian CIT,
  • change of remitter for a levy on the transfer of shares in a real estate company, i.e. a company whose assets are mostly real estate, from shareholder to company,
  • introducing an obligation for CIT taxpayers to draw up and make public their tax policy for a given year,
  • eliminating interpretation doubts concerning the provisions on limiting the excess cost of debt financing,
  • reducing potential loss settlement in a situation in which the company took over another entity or made a contribution in kind in the form of an enterprise or an organised part thereof, or a cash contribution for which the enterprise or an organised part thereof was acquired,
  • approximating the principles of determining the amount of depreciation write-offs defined in the CIT Act to the provisions of the Accounting Act,
  • classifying as revenue the transfer of tangible assets by a liquidated company (cooperative) to its shareholders, partners or members of the cooperative.

Transfer prices and withholding tax

The changes are also to cover transfer prices and withholding tax (WHT). As far as transfer prices are concerned, it is planned to extend the groups of transactions subject to market price verification, in particular if the beneficial owner is registered in the so-called tax haven, and to increase documentation obligations for such transactions.

As far as withholding tax is concerned, the Government envisages the introduction, as of 1 January 2021, of an obligation to collect WHT on dividends, interest and royalties paid to subsidiaries at statutory rates of 19% or 20%. The tax is to be collected even if the exemption provided for in the Double Tax Treaty or national legislation based on EU directives can be applied. However, the levy is to be reimbursed within 6 months if the taxpayer meets the relevant conditions.

The amendments also provide for an extension until the end of 2023 of the validity of issued security opinions and a clarification of the definition of beneficial owner and due diligence requirements for the application of the withholding tax exemption.

Changes to personal income tax (PIT)

Another novelty which the Ministry of Finance has been preparing to introduce in 2021 is the extension of the group of taxpayers entitled to the flat-rate income tax through an increase in the revenue limit from the current EUR 250 000 to EUR 2 million. The definition of freelance professions will also be changed, the tax card exemption in the case of conducting the same activity by a spouse is to be abolished and the current abolition relief is to be removed.

The amendment will also include the limitation regarding the possibility of setting the depreciation rate in a situation in which a taxpayer takes advantage of the exemption and will introduce solutions entitling taxpayers to the exemption from tax on income from buildings, similarly to the CIT Act.

According to the plans of the Ministry of Finance, the above-mentioned changes are to take effect from 2021. The drafted regulations are supposed to tighten the income tax system, while for many taxpayers they mean a revolution, often forcing the adaptation of business structures or accounting systems to the new solutions.

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

Tax Advisory