Ongoing tax advice in Poland

Corporate income tax (CIT) is an important state tax that mainly contributes to the state budget. Taxpayers of corporate income tax, abbreviated to CIT, are a variety of legal entities. The most important of these include:

- legal entities such as limited liability companies, public limited companies, foundations, associations or co-operatives

- corporations in formation

- organisational units without legal personality, with the exception of companies without legal personality

- special types of companies, such as certain general partnerships and partnerships limited by shares as well as limited partnerships with registered office or management in Polan

- tax capital groups, i.e. groups registered with the tax authorities consisting of at least two trading companies that fulfil certain conditions

- Unincorporated companies with their registered office or head office in another country that are treated as legal entities under the tax law of the other country and are taxed on their entire income in the other country, regardless of where it is earned

For an expense to be deductible, the following conditions must be met:

- Incurred by the taxpayer: The costs must have been incurred by the taxpayer, i.e. they must be recognised in the taxpayer's accounts on the basis of an invoice or other accounting document issued

- Purpose of the expenditure : Expenditure should be incurred with the aim of generating revenue, maintaining or securing a source of income. This means that the expenditure should contribute to the business activity and generate income

- No exclusion of tax-deductible expenses: An expense may not be included in the catalogue of non-tax-deductible expenses. Certain expenses, although incurred in connection with a business, may be excluded from deductibility under tax law

Anyone purchasing intangible services should ensure that they are properly documented. This is because missing or insufficient evidence for the provision of intangible services can lead to the tax authorities questioning the possibility of recognising the expenses incurred for these services as tax-deductible costs.

Proof of the provision of intangible services is inextricably linked to the specific nature of the services provided/acquired. Other types of evidence are sufficient for tax advisory services and others for marketing, IT or management services. The CIT Act does not provide for a catalogue of specific evidence for the provision of intangible services.

In practice, the following documents are usually collected:

- contract

- working hours

- an attachment to the invoice with the exact scope of the work carried out

- protocol on the acceptance of the work

- E-mail correspondence

- documents created as part of the work carried out (reports, presentations, analyses)

- records of negotiations with the other party

The following CIT tax rates apply in Poland:

- a standard CIT rate of 19 % on the tax base, which is applied to most income (revenue) earned by entrepreneurs

- a reduced rate of 9 % to support small businesses and start-ups

Taxable income within the scope of CIT includes, in particular, sums of money received, monetary values, exchange rate differences or the value of goods, rights or other services received free of charge or partially in return for payment. It is important to note that income in connection with business activities is deemed to be due income, even if it was not actually received, after the value of returned goods and discounts granted have been taken into account.

The tax revenue from the CIT arises at the time of the delivery of the goods, the sale of the title or the provision of the service, including the partial provision of the service, but at the latest at the time of the invoice or payment of the amount due.

In the case of a periodically invoiced service, the tax income arises on the last day of the invoicing period specified in the contract or invoice (at least once a year).

In the case of income to which the above solutions are not applicable, the date on which the income arises is the date on which the payment is received, e.g. in the case of interest income.

In the Polish legal system, it is permissible to pay tax advances on a monthly or quarterly basis.

Monthly CIT advances are paid by the 20th of each month for the previous month, and the advance payment for the last month of the tax year is paid by the 20th of the first month of the following tax year. If a taxpayer submits a CIT-8 return and pays taxes before the deadline for payment of the advance for the last month, he/she will no longer pay the monthly advance for that month.

Quarterly advances can be paid:

- taxpayers who are newly established - in their first tax year

- small taxpayers

Quarterly CIT advances are paid by the 20th day of the month following the quarter for which the advance is paid, and the advance for the last quarter of the tax year is paid by the 20th day of the first month of the following tax year. If a taxpayer files a CIT-8 return and pays taxes before the deadline for payment of the advance for the last quarter, he does not have to pay the advance for the last quarter.

The taxpayer informs about the choice of the method of payment of quarterly advance payments in the tax return submitted for the tax year in which the quarterly method of payment of advance payments was applied.

CIT taxpayers can make monthly advance payments in a simplified form, i.e. in the amount of 1/12 of the tax liability shown in the return for the year preceding the tax year in question.

If no output tax is stated in the above-mentioned tax return, monthly advance payments can be made in the amount of 1/12 of the tax liability resulting from the return submitted two years prior to the tax year in question. However, if no tax liability was reported in that year either, the taxpayer cannot make advance payments in the simplified form.

Taxpayers who wish to opt for a simplified form of prepayment must:

- use this form of prepayment throughout the tax year

- to make advance payments on the dates specified for the monthly advances

- submit a tax return for the tax year

The taxpayer informs about the choice of simplified advances in the annual return submitted for the tax year in which the simplified advances were applied.

Estonian corporate income tax is a tax model designed to simplify tax returns and accounting for companies and thus optimise the tax burden. It is a flat rate on corporate income that allows tax to be paid only when profits are distributed, which is a considerable relief for companies that want to maximise the efficiency of their investments:

- no traditional tax accounting : companies do not have to keep tax accounts, determine tax-deductible costs or calculate tax depreciation. Corporation tax is only paid when profits (dividends) are distributed, which gives companies flexibility in managing their financial resources.

- preferential tax rate: The effective tax rate, which summarises the taxes on corporate profits and dividends, is lower than the traditional corporate tax rate. For small taxpayers, the effective tax rate is 20% instead of 26.29% and for other taxpayers 25% instead of 34.39%

It is important to note that only natural persons can be shareholders or partners of companies in order to benefit from this form of taxation.

As part of the Polish Investment Zone, companies have the opportunity to benefit from income tax exemption - both in terms of CIT and PIT. This possibility is a response to the needs of companies implementing new investment projects that qualify for regional support.

The basis for calculating the tax relief threshold is:

- the total value of the new investments made

- the sum of the costs incurred by hiring new employees in the first two years of the project

The amount of tax relief is staggered and depends on two main factors:

- company size - smaller companies can expect additional percentage points of support

- investment location - depending on the region, entrepreneurs can apply for reimbursement of up to 70 % of the investment costs

Income tax is levied on a variety of sources of income, including:

- Income from employment, commissions, pensions

- corporate profits

- rental income;

- capital gains;

-income from the sale of movable and immovable assets;

-income from unrealised gains, the so-called exit tax.

A tax resident in Poland is a person who fulfils at least one of the following criteria:

- stay in Poland for at least 183 days during the tax year

- have a centre of life in Poland, i.e. a place where the person's personal or economic interests are concentrated

A centre of life with personal or economic interest is defined by strong personal or economic ties within Poland, e.g:

- ownership of the property

- participation in social, family and political life

- membership of an organisation

- sources of income, place of business, investments, assets, bank accounts

The Polish VAT Act precisely defines the scope of transactions subject to VAT, which is crucial for companies to understand and apply the tax rules correctly. It includes

- supply of goods for consideration : supply of goods for consideration, understood as the transfer of the right to dispose of the goods as an owner (in certain cases, a transfer of goods free of charge by a taxpayer is considered a supply for consideration)

- provision of services in return for payment on the territory of Poland

- export of goods outside the EU

- import of goods from outside the EU

- delivery of goods to other EU countries

- purchase of goods from the territory of other EU countries

Various VAT rates are applied in Poland, including

- base rate of 23 %;

- preferential rates: 5%, 8%

- an allowance of 0 %

The exact rate for certain goods and services is set out in the applicable VAT Act.

A company must register for VAT in Poland if, among other things :

- goods sold on the territory of Poland

- sells goods from Poland and transports them to an EU country or buys goods from an EU country

- provides property services for a company that does not pay VAT in Poland

- imports goods from outside the European Union into the territory of Poland

- exports goods from the territory of Poland outside the European Union

A company that does not have its registered office in Poland cannot benefit from the tax exemption if it has an annual turnover of up to PLN 200,000. In addition, the obligation to register does not apply to sales of exclusively exempt goods or services (e.g. the provision of certain medical care services or services of a financial nature).