On 1st of January 2017, the new amendments of the Polish Corporate Income Tax (CIT) and Personal Income Tax (PIT) acts entered into force. The major legislative change refers to reducing the CIT rate for small corporate taxpayers and start-up businesses. According to the new amendments, companies which report gross sales of less that EUR 1,2 million can benefit from a reduced CIT rate of 15%, instead of the standard rate of 19%. The same reduced CIT rate applies to businesses during the first year of their operation, with the exception of certain pre-defined corporate taxpayers, such as companies formed as a result of corporate restructuring.
Apart from reducing the CIT rate for certain taxpayers, the new amendments include the adoption of provisions related to: (1) Polish-sourced income; (2) beneficial ownership; (3) anti-avoidance; (4) taxation of in-kind contributions; and (5) cancellation of shares. These five categories of provisions are briefly examined below.
1. Polish-sourced income.
The new amendments define Polish-source income with the aim to ensure limited tax liability of non-Polish residents. More particularly, the term “Polish-sourced income” is defined as“income earned within the territory of Poland”. The term includes payments made by legal and natural persons who have (1) a place of residence, (2) a registered office, or (3) a place of management in Poland.
2. Beneficial ownership.
The amendments add a definition of “beneficial owner” in the CIT and PIT acts. In order to apply for an exemption from withholding tax due on interest and royalties paid to companies located within the EU and EEA, the recipients of such payments are required to confirm that they are beneficial owners of the payments.
3. Anti-avoidance regulations.
To ensure tax anti-avoidance, the amendments include rules regarding the share-for-share exchange. If a company would like to benefit from preferential taxation on share-to-share transactions, it is obliged to provide valid business reasons for conducting the transactions. If the company fails to provide valid reasons, the transactions may be deemed as aiming to avoid taxation.
4. Taxation of in-kind contributions.
Taxpayers’ taxable gain acquired from in-kind contributions that are not in the form of business will be taxed on the basis of the value of such contributions as defined in the company’s documents. In the previous version of the CIT Act, the taxable gain corresponded to the nominal value of shares issued in exchange for the contribution.
5. Cancellation of shares.
The amended CIT act explains that the term “cancellation of shares” also includes a reduction of the nominal value of shares.
