Tax Technology and Transformation
Radosław Krupa
Aleksandra Sewerynek
Indirect Tax
Dorota Pokrop
Sławomir Czajka
Mobile: +48 660-440-161
Email: radoslaw.krupa@pl.ey.com
Mobile: +48 510-201-222
Email: aleksandra.sewerynek@pl.ey.com
Mobile: +48 660-440-167
Email: dorota.pokrop@pl.ey.com
Mobile: +48 789-407-593 (resident in Wroclaw)
People Advisory Services
Marek Jarocki
Tax Controversy
Michał Goj
Center for Tax Policy
Zbigniew Liptak
Global Compliance and Reporting Zbigniew Deptuła
Jerzy Toczyński
Legal Services
Zuzanna Zakrzewska
Gdańsk
EY
Email: slawomir.czajka@pl.ey.com
Mobile: +48 660-440-189
Email: marek.jarocki@pl.ey.com
+48 (22) 557-72-53
Mobile: +48 660-440-216
Email: michal.goj@pl.ey.com
Mobile: +48 502-444-107
Email: zbigniew.liptak@pl.ey.com
+48 (22) 557-89-84
Mobile: +48 508-018-377
Email: zbigniew.deptula@pl.ey.com
Mobile: +48 797-305-793
Email: jerzy.toczynski@pl.ey.com
+48 (22) 557-78-16
Mobile: +48 602-789-839
Email: zuzanna.zakrzewska@pl.ey.com
+48 (58) 771-99-00 Tryton Business House Email: gdansk@pl.ey.com Jana z Kolna 11 80-864 Gdańsk Poland
Principal Tax Contact
Tomasz Socha
Katowice
EY
+1
Mobile: +48 510-201-262 Email: tomasz.socha@pl.ey.com
+48 (32) 760-77-00 al. W. Roździeńskiego 1
Fax: +48 (32) 760-77-10 Katowice 40-202 Email: katowice@pl.ey.com Poland
Principal Tax Contact
Michal Lesiuk
Krakow
EY
+1
Mobile: +48 510-201-2377
Email: michal.lesiuk@pl.ey.com
+48 (12) 424-32-00 ul. Podgórska 36 Fax: +48 (12) 424-32-01 31-536 Krakow Email: krakow@pl.ey.com Poland
+1
Principal Tax Contact
Michal Lesiuk
Mobile: +48 510-201-2377 (resident in Katowice)
Poznan
EY
Pl. Andersa 3
Email: michal.lesiuk@pl.ey.com
+48 (61) 856-29-00
Fax: +48 (61) 856-30-00 61-894 Poznan
Email: poznan@pl.ey.com Poland
Principal Tax Contact
Radosław Krupa
Mobile: +48 660-440-161 (resident in Warsaw)
Wroclaw
EY
Rzeźnicza 32-33
+1
Email: radoslaw.krupa@pl.ey.com
+48 (71) 375-10-00
Fax: +48 (71) 375-10-10 50-130 Wrocław
Email: wroclaw@pl.ey.com Poland
Principal Tax Contact
Michal Lesiuk
Mobile: +48 510-201-2377 (resident in Katowice)
Email: michal.lesiuk@pl.ey.com
Because of the rapidly changing regulatory framework in Poland, readers should obtain updated information before engaging in transactions.
A. At a glance
5/9/19 (a)
(a) The preferential 5% tax rate applies to “qualified income” obtained from the qualifying intellectual property (IP) created, developed or improved by a taxpayer as part of its research and development (R&D) activity. The reduced 9% corporate income tax rate on income other than income from capital gains applies to small taxpayers whose revenue from sales did not exceed the zloty (PLN) equivalent of EUR2 million in the preceding year (gross, including value-added tax [VAT]) and in the current year (net, excluding VAT).
(b) This tax is imposed on dividends paid to residents and nonresidents.
(c) This rate may be reduced by a tax treaty, or under domestic law, if certain conditions are met (see Section B).
(d) This rate applies only to interest and royalties paid to nonresidents.
(e) The tax rate may be reduced by a tax treaty or under domestic law if certain conditions are met (see Section B).
(f) This withholding tax applies only to service payments made to nonresidents.
(g) No more than 50% of the original loss can be deducted in one year unless the loss is below PLN5 million. Tax losses can reduce taxable income only from the same income source.
Minimum tax on corporate taxpayers. The domestic minimum income tax was introduced to the Corporate Income Tax Act as part of the Polish Deal. However, its entry into force was deferred until the end of 2023. As a result, 2024 is the first year covered by the (amended) regulations on the domestic minimum tax.
The taxpayers of the minimum tax are companies, tax capital groups and permanent establishments of foreign entities that in the given tax year incurred a loss from sources of income other than capital gains or achieved profitability (the share of income from sources of income other than capital gains in revenues from the same source) not higher than 2%.
For the purposes of establishing the amount of loss or level of profitability, special rules provided in the regulations must be applied, such as the exclusion for depreciation write-offs.
The tax amounts to 10% of the tax base, which includes the following elements:
• 1.5% of revenues from sources of income other than capital gains
• Part of cost of debt financing incurred toward related entities
• Part of cost of intangible services and license fees incurred toward related entities or entities from tax havens
Alternatively, the taxpayer can choose a simplified method of determining the tax base in the amount of 3% of revenues from sources of income other than capital gains.
However, the legislator has provided several exclusions, according to which the provisions on minimum tax do not apply. These exclusions include, among others, entities commencing their business activity, entities with revenues lower by at least 30% than in the previous year and entities carrying out a specified business activity listed in the regulations.
The due date for payment of this tax coincides with the deadline for settling the regular corporate income tax (CIT-8 return). The minimum tax is reduced by the corporate income tax due for a given year, and there is also a mechanism for deducting the paid minimum tax from the corporate income tax in subsequent years.
Capital gains. Effective from 1 January 2018, capital gains constitute a separate revenue “basket” from other sources of revenue. As a rule, capital gains include, among others, the following:
• Revenues from sharing in profits of legal entities, including, among others, the following:
— Dividends
— Revenues from redemption of shares (stock)
— Proceeds from liquidation of a company
— Profits of a company designated to increase its share capital as well as amounts transferred from other capital of a company to increase its share capital
— Additional payments received in connection with a merger or demerger of a company by entities that have the right to share in profits of that company
— Revenues derived by a shareholder of a demerged company, if property taken over as a result of the demerger or a property remaining at the level of a demerged company does not constitute an organized part of the business
— Additional payments received in connection with an exchange of shares
— Undivided profits and profits designated to capital other than share capital in a transformed company in the case of its transformation into a partnership
— Interest from certain profit-participation loans
— Revenues from transformations, mergers or demergers
— Revenues derived as a result of liquidation of a partnership, exiting such an entity or decreasing the interest in it, if Poland loses the right to tax income from the disposal of the acquired assets
• Revenues from a contribution in kind to a company
• Revenues from shares in a company other than those mentioned above, including the following:
— Revenues from the disposal of shares (including disposal of shares as a part of a redemption process)
— Revenues from an exchange of shares
• Revenues from the disposal of an interest in a partnership
• Revenues from the disposal of receivables acquired by a taxpayer and receivables connected with revenues treated as capital gains
• Revenues from the following:
— Certain property rights (including copyrights, licenses, industrial property rights and know-how), excluding revenues from licenses directly connected with revenues not treated as capital gains
— Securities and derivatives, excluding derivatives hedging revenues or costs that are not treated as capital gains
— Participations in investment funds or institutions for common investments
— Renting or disposal of the above rights
In general, taxable income from a given source should be calculated as the difference between taxable revenues from that source and tax-deductible costs connected with that source of income. Taxable income or loss should be calculated separately for capital gains and for other sources of income. Capital losses do not offset income from other sources and vice versa.
Capital gains derived by nonresidents from sales and other disposals of state bonds issued on foreign markets may be effectively exempt from tax in Poland under domestic regulations if certain conditions are satisfied.
Administration. The Polish tax year must last 12 consecutive months, and it is usually the calendar year. However, a company can choose a different period of 12 consecutive months as its tax year by notifying the relevant tax office by certain deadlines. The first tax year after a change must extend for at least 12 months, but no longer than 23 months. If a company incorporated in the first half of a calendar year chooses the calendar year as its tax year, its first tax year is shorter than 12 months. A company incorporated in the second half of a calendar year may elect a period of up to 18 months for its first tax year (that is, a period covering the second half of the year of incorporation and the subsequent year).
In general, companies must pay monthly advances based on preliminary income statements. Monthly declarations do not need to
be filed. In certain circumstances, a company may benefit from a simplified advance tax payment procedure.
Companies must file an annual income tax return within three months after the end of the company’s tax year. They must pay any balance of tax due at that time.
An overpayment declared in an annual tax return is refunded within three months. However, before the overpayment is refunded, it is credited against any past and current tax liability of the company. If the company has no tax liability, it may request that the tax office credit the overpayment against future tax liabilities or refund the overpayment in cash. Overpayments earn interest at the same rate that is charged on late payments. Under the tax code, the rate of penalty interest on unpaid taxes varies according to the fluctuation of the Lombard credit rate. The interest rate on tax arrears is 200% of the Lombard credit rate, plus 2%. It cannot be lower than 8%. The penalty interest rate was 14.5% on 1 January 2024.
Dividends. A 19% withholding tax is imposed on dividends and other profit distributions (other revenues from sharing in profits of legal entities) paid to residents and nonresidents, subject to provisions of double tax treaties and the European Union (EU) Parent-Subsidiary Directive. Resident recipients do not aggregate domestic dividends received with their taxable income subject to the regular rate. For nonresident recipients, the withholding tax is considered a final tax and, accordingly, the recipient is not subject in Poland to any further tax on the dividend received.
Polish companies (joint-stock partnerships, effective from 1 January 2014 and limited partnerships, effective from 1 January 2021), other European Economic Area (EEA; the EEA consists of the EU countries and Iceland, Liechtenstein and Norway) companies and Swiss companies are exempt from tax on dividends received from Polish subsidiaries, profits of a subsidiary (or amounts from certain capital) designated to increase its share capital and undivided profits of a subsidiary and profits designated to capital other than share capital on transformation of the subsidiary into a partnership, if they satisfy all of the following conditions:
• They are subject to income tax in Poland, an EU/EEA Member State or Switzerland on their total income, regardless of the source of the income (the exemption applies also to dividends or other profit distributions paid to permanent establishments, located in EU/EEA Member States or in Switzerland, of such companies).
• They do not benefit from income tax exemption on their total income (which should be documented with their written statement).
• For at least two years, they hold directly at least 10% (25% for Swiss recipients) of the capital of the company paying the dividend. The two-year holding period can be met after payment is made. If the two-year holding period is eventually not met (for example, the shareholder disposes of the shares before the twoyear holding requirement is met), the shareholder must pay the withholding tax and penalty interest. Broadly, except for some specific cases, full ownership of the shares is required.
• The Polish payer documents the tax residency of the recipient with a certificate of residency issued by the competent foreign tax authorities (if payments are received by a permanent establishment, some other documents may be needed).
• A legal basis exists for a tax authority to request information from the tax administration of the country where the taxpayer is established, under a double tax treaty or other ratified international treaty to which Poland is a party.
• The dividend payer is provided with a written statement confirming that the recipient of the dividend does not benefit from exemption from income tax on its worldwide income, regardless of the source from which such income is derived.
The above exemption does not apply to revenues earned by a general partner from its share in the profits of a limited partnership or a general partner from its share in the profits of a limited joint-stock partnership.
The tax exemption for inbound dividends and the exemption from withholding tax on outbound dividends do not apply if the dividends are connected with an agreement, other legal action or a series of related actions and if the main purpose or one of the main purposes is to benefit from these tax exemptions (see Section E).
The application of exemptions from withholding tax or reduced treaty rates (above certain thresholds) may be subject to a pay and refund mechanism (see Withholding tax collection mechanism).
More specific rules exist regarding the corporate income taxation of partners of a limited partnership and limited joint-stock partnership.
The income (revenue) allocated to a Polish branch is subject to regular taxation in Poland. Withholding tax is not imposed on transfers of profits from such branch to its head office because from a legal perspective, a branch is regarded as an organizational unit of the foreign enterprise.
Interest, royalties and service fees. Under the domestic tax law in Poland, a 20% withholding tax is imposed on interest, royalties and fees for certain services paid to nonresidents.
Under most of Poland’s tax treaties, the withholding tax on fees for services may not be imposed in Poland.
The full exemption applies to interest and royalties paid to qualifying entities if the following conditions are met:
• The payer is a company that is a Polish corporate income taxpayer (the exemption does not apply to limited partnerships and joint-stock partnerships) with a place of management or registered office in Poland (the exemption applies also to payments made by permanent establishments located in Poland of entities subject to income tax in the EU on their total income, regardless of the source of the income, provided that such payments qualify as tax-deductible costs in computing the taxable income subject to tax in Poland).
• The entity earning the income is a recipient of such income and is a company subject to income tax in an EU/EEA Member State (other than Poland) on its total income, regardless of the source of the income (the exemption applies also to payments
A Polish company receiving a dividend from a subsidiary that is not resident in the EU, EEA or Switzerland may deduct from its tax the amount of income tax paid by the subsidiary on that part of the profit from which the dividend was paid if the Polish parent company has held directly at least 75% of the foreign subsidiary’s shares for an uninterrupted period of at least two years. The total deduction is limited to the amount of Polish tax attributable to the foreign income.
Foreign-source dividends are added to other profits of a Polish taxpayer and are taxed at the standard 19% rate.
Dividends from companies resident in EU/EEA states or in Switzerland may be exempt in Poland if the Polish recipient holds directly at least 10% (25% in the case of Switzerland) of the share capital of the foreign subsidiary for an uninterrupted period of at least two years. The shareholding period requirement does not have to be met as of the payment date. The exemption does not apply if the dividends (or dividend-like income) are deductible for tax purposes in any form.
The tax exemption for inbound dividends does not apply if the dividends are connected with an agreement or other legal action or a series of related actions and if the main purpose or one of the main purposes is to benefit from this exemption (see Section E).
The above exemption also does not apply if income from the participation, including redemption proceeds, is received as a result of the liquidation of the legal entity making the payments.
The domestic exemption or tax credit can be applied if a legal basis exists for a tax authority to request information from the tax administration of the country from which the income was derived, under a double tax treaty or other ratified international treaty to which Poland is a party.
Broadly, except for some specific cases, full ownership of the shares is required to claim the credits and exemptions discussed above.
C. Determination of trading income
General. Taxable income is calculated as the sum of taxable income from the capital gains basket (source) and taxable income from other sources of revenues. Taxable income from a given source of revenue equals the difference between taxable revenues and tax-deductible costs related to that source in a given tax year. If tax-deductible costs are higher than revenues, the difference constitutes a tax loss from a given source of revenue. Taxable income or loss should be calculated separately for capital gains and for other sources of revenue. Capital losses do not offset income from other sources and vice versa.
In general, taxable revenues of corporate entities carrying out business activities are recognized on an accrual basis. Revenues are generally recognized on the date of disposal of goods or property rights or the date on which services are supplied (or supplied in part), but no later than the following:
• Date of issuance of the invoice
• Date of receipt of payment
If the parties agree that services of a continuous nature are accounted for over more than one reporting period, revenue is recognized on the last day of the reporting period set out in the contract or on the invoice (however, not less frequently than once a year).
The definition of revenues includes free and partially free benefits. Expenses are generally allowed as deductions if they relate to taxable revenues derived in Poland, but certain expenses are specifically disallowed. Payments in the amount of at least PLN15,000 should be made through a bank account; otherwise, such expenses might not be allowed as deductions for tax purposes. Additionally, payments exceeding PLN15,000 need to be made to a bank account listed on a so-called approved list if the invoice is issued by an active VAT payer. Otherwise, unless the tax office is informed on time, the cost needs to be treated as a non-taxdeductible cost.
Branches and permanent establishments of foreign companies are taxed on income determined on the basis of the accounting records. However, regulations provide coefficients for specific revenue categories, which may be applied if the tax base for foreign companies cannot be determined from the accounting records.
Limitation on the deductibility of costs of intangible services and royalties. Effective from 1 January 2018 until the end of 2021, fees for certain intangible services and royalties in part exceeding the limit of the sum of 5% of the adjusted tax base (broadly, 5% of taxable earnings before interest, taxes, depreciation and amortization [EBITDA]) and PLN3 million were not deductible for tax purposes. In particular, the limit applies to the following:
• Services such as advisory, market research, advertising, management, data processing, insurance, providing guarantees and other similar services
• Payments for the use of licenses, trademarks and certain other rights
• Payments for credit-risk instruments or derivatives regarding non-banking loans, made directly or indirectly to related parties or entities in a prohibited list territory or state
Certain exceptions existed, including direct costs of goods or services sold and transactions for which a taxpayer obtains an Advanced Pricing Agreement (APA) from the Polish Ministry of Finance.
A carryforward mechanism of five years for non-deducted costs was provided, with certain restrictions.
The limitation mentioned above was abolished, starting from 1 January 2022. There are, however, other new rules that may potentially impact deductibility or taxation of such items.
Depreciation. For tax purposes, depreciation calculated in accordance with the statutory rates is deductible. Depreciation is computed using the straight-line method. However, in certain circumstances, the reducing-balance method may be allowed. The following are some of the applicable annual straight-line rates.
* For used buildings, an individual depreciation rate may be applied (the minimum depreciation period is calculated as a difference between 40 years and the time of use of the building).
For certain types of assets, depreciation rates may be increased. Companies may also apply reduced depreciation rates.
Intangibles are amortized over a minimum period, which usually ranges from 12 months (for example, development costs) to 60 months (for example, goodwill).
Certain limitations with respect to the tax depreciation of real property and residential properties have been introduced from 1 January 2022.
Relief for losses. Losses from the capital gains basket may not offset income from another basket (source) and vice versa. Losses from a given basket (source) may be carried forward to the following five tax years to offset profits from that source of income that are derived in those years. Up to 50% of the original loss may offset profits in any of the five tax years, with an exception to tax losses not exceeding PLN5 million. Losses from capital gains cannot offset profits from another source and vice versa. Losses may not be carried back. Certain restructurings may cause premature expiration of tax losses.
Groups of companies. Groups of related companies (only limitedliability companies, joint-stock companies and simple joint-stock companies) may report combined taxable income and pay one combined tax for all companies belonging to the group. To qualify as a tax group, related companies must satisfy several conditions, including the following:
• The average share capital per each company is not lower than PLN250,000.
• The parent company in the tax group must directly own 75% of the shares of the subsidiary companies.
• The agreement on setting up a tax group must be concluded for a period of at least three years. It must be concluded in written form and registered with the tax office.
• The members of the group may not benefit from any corporate income tax exemptions based on laws other than the Corporate Income Tax Act.
In practice, the applicability of the rules for tax groups were previously limited, primarily as a result of the profitability requirement and certain other restrictive conditions. However, because the profitability requirement has been abolished, it is expected that tax grouping will become more common.
From 2023, there is also a possibility to establish VAT groups in Poland, subject to certain conditions. VAT groups can be created by entities with financial, economic and organizational links that make an appropriate agreement, select the VAT group’s
• If the benefit from the exemption would contradict the purpose and nature of the regulations
• If the benefit from the exemption was the main or one of the main purposes of the transaction(s) or another action(s)
• If the mode of action is artificial
For purposes of the above rule, the mode of action is not artificial if it is reasonable that it would have been applied by a lawful entity primarily for justified economic reasons.
The above anti-abuse rule applies only to entities that can benefit from a withholding tax exemption based on the Polish domestic rules implementing the EU Parent Subsidiary Directive.
Certain anti-avoidance rules relate to the neutrality of a merger, demerger and a share-for-share exchange with the conditions of neutrality stricter than those formulated in the Directive.
The General Anti-Abuse Rule (GAAR) entered into force on 15 July 2016. The GAAR was amended, effective 1 January 2019. Broadly, under the GAAR provisions, tax authorities shall disregard an arrangement or a series of arrangements that have been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the applicable tax law and accordingly is not genuine (artificial). In such a case, the tax implications of a transaction are determined by reference to the facts that would have been generated if a suitable transaction (or, if suitable, no transaction) had been carried out. The GAAR does not apply if an entity receives a securing opinion issued by the head of the National Tax Administration (Krajowa Administracja Skarbowa, or KAS). A separate procedure, which costs PLN20,000 (approximately EUR4,500), exists for obtaining such a securing opinion. GAAR regulations do not apply to VAT (a separate regulation exists) and non-tax budget revenues. If GAAR is applied, additional tax of up to 30% of the additional tax base (for corporate income tax) can be imposed.
Mandatory Disclosure Regime. Effective from 1 January 2019, Poland introduced a Mandatory Disclosure Regime requiring certain intermediaries (including non-Polish tax consultants, banks and lawyers) and, in some situations, taxpayers to report certain arrangements (reportable arrangements) to the relevant tax authority.
Arrangements are reportable if they contain certain features (hallmarks). The Polish legislation extends the scope of the reporting required under the Council of the EU Directive 2018/822 of 25 May 2018, amending Directive 2011/16/EU, to include the following:
• The definition of reportable tax arrangements is extended to comprise not only cross-border but also domestic tax arrangements.
• The definition of covered taxes is widened to include VAT.
• Additional hallmarks are added.
• Like the directive, reporting applies to cross-border arrangements for which the first step of implementation takes place after 25 June 2018. In addition, reporting applies to tax arrangements defined by domestic law for which the first step of implementation occurs after 1 November 2018.
— The foreign entity’s income exceeds the income calculated according to a formula, which is (carrying amount of the entity’s assets + annual personnel costs of the entity + accumulated depreciation to date within the meaning of the accounting regulations) × 20%.
— Less than 75% of the foreign entity’s revenue is derived from transactions with unrelated parties that are resident, established, managed, registered or located in the same country as that entity.
— The tax paid by this company is at least 25% lower than the corporate income tax that would have been due at the rate of 19% if that entity was a Polish tax resident, whereby the tax actually paid will be understood as a tax that is nonrefundable or nondeductible in any form, also to another entity.
If the entity meets one of the above definitions, an additional income tax at 19% is imposed on shareholders (Polish tax residents) of this entity. The shareholder is taxed on the part of the profits of the CFC in which the shareholder participates after deducting dividends received from the CFC and gains on disposals of shares in the CFC, if they are included in the shareholder’s tax base (these amounts may be deducted in the following five tax years). The tax payable in Poland may be decreased by the relevant proportion of corporate income tax paid by the CFC.
In addition, meeting the CFC definition triggers reporting obligations, such as filing returns, which have to be fulfilled by the CFC shareholders.
CFCs in prohibited list territories or states (and to some extent, CFCs in non-treaty countries) are subject to more restrictive rules.
Taxation under the CFC rules does not apply if the CFC is subject to tax on its worldwide income in an EU/EEA Member State and carries a “substantial genuine business activity” in that state.
The CFC rules also apply to taxpayers carrying on business activity through a permanent establishment located outside of Poland, with certain exceptions, as well as to non-Polish tax residents carrying out its activities through a permanent establishment located in Poland to the extent that such activities are connected with activities carried out by the permanent establishment located outside Poland.
Effective from 1 January 2019, certain anti-abuse provisions have been introduced. Under these provisions, artificial relationships that distort the relations or status of a foreign entity for CFC purposes are disregarded.
Taxation of “shifted profits.” The taxation of “shifted profits” (also referred to as taxation of undertaxed payments) imposes tax of 19% on certain qualified payments made directly or indirectly to related entities if effective taxation at the recipient level is lower than 14.25%. Additional tests and exceptions could apply. Burden of proof has been explicitly allocated to the payer (Polish taxpayer); therefore, even if tax is not due, evidence confirming it (that is, that tests have not been passed) must be kept.
• 31 December 2025 in the case of active VAT taxpayers
• 31 December 2026 for other taxpayers
According to the latest amendment, JPK_PIT and JPK_CIT will be sent after the end of the year rather than monthly or quarterly.
E-invoices in the National e-Invoices System. From 1 January 2022, entrepreneurs are able to use the e-invoice system voluntarily. The supplier can issue an e-invoice through the National e-Invoices System (KSeF), but an invoice of that type will require the recipient’s consent to be sent in the system. According to the planned amendment of the VAT Act, the obligation to issue e-Invoices using KSeF will come into force in 2025). E-invoices should be issued in the XML format (similar to that of the SAFT; see Standard audit file for tax purposes). The system assumes real-time reporting.
As a rule, all taxpayers with a registered business or a fixed establishment in Poland will be required to issue structured invoices via KSeF, although certain subjective exclusions apply to the following entities:
• Taxpayers without a fixed place of business in Poland who have a fixed establishment there. However, this fixed establishment is not involved in the supply of goods or services for which the invoice is issued
• Taxable persons making use of the special procedures described in Chapters 7, 7a and 9 of Part XII of the Polish VAT Act, documenting the activities settled under those procedures
• Other entities listed in the Regulation of the Minister of Finance
Certain types of invoices will be entirely exempt from the obligation to issue them via KSeF. These will include the following:
• Business-to-consumer (B2C) invoices
• Tickets that function as invoices (including toll motorway receipts)
• Invoices issues under One Stop Shop (OSS) and Import One Stop Shop (IOSS) procedures
Exit tax. As required by the EU, Poland has introduced an exit tax, effective from 1 January 2019. This is an income tax on unrealized profits (hidden reserves) that are embedded in a taxpayer’s property and that are potentially transferred together with such property outside of Poland in the following actions:
• The property is transferred within the same taxpayer (for example, a transfer by a Polish resident to its permanent establishment located abroad or a transfer by a nonresident operating through a Polish permanent establishment to its home country or to another country in which it operates).
• The taxpayer’s residence is changed.
Exit tax on unrealized profits is calculated as the difference between the fair market value of the property transferred (established based on separate rules) and its tax book value (that would have applied had the given property been disposed of) as of the date of the transfer.
Transfer pricing. The Polish tax law includes specific rules on transfer pricing. Effective from 2017, fundamental changes were introduced regarding the obligations and scope with respect to transfer-pricing documentation, followed by changes effective
from 2019 and 2022 tax years. The main rules, which are based on the OECD guidelines, are contained in the Corporate Income Tax Act and the Personal Income Tax Law. Several Decrees of the Ministry of Finance and official announcements of the Ministry of Finance were published to provide details regarding the wording of the law.
Effective from 2019 tax year, the definition of related parties is changed significantly. The amended law broadens the scope of entities that may fall within this definition and incorporates additional anti-abuse rules. The amended law has removed the relations resulting from employment from the definition.
Under the Corporate Income Tax Act, the following entities are considered to be related parties:
• An entity and at least one other entity over which it exercises significant influence
• A natural person, including a spouse or a relative to the second degree of relation and an entity, and an entity over which he or she exercises significant influence
• An entity that exercises significant influence over a company without legal personality and such company and its partners
• The taxpayer and its permanent establishment, and in the case of a tax capital group, a capital company belonging to the group and its permanent establishment
Under the amended law, parties whose relations are held or established without business justification, including relations aimed at the manipulation of the ownership structure or the creation of circular ownership structures, are treated as related parties.
The following is considered to be significant influence:
• Owning directly or indirectly at least 25% of shares in capital, the voting rights for the control of the managing authorities of the company or shares or rights for participation in profits, property or expectative, including participation units and investment certificates
• The actual ability of a natural person to influence the key business decisions undertaken by a legal person or an organizational unit without legal personality
• Being married or being a relative to the second degree
In the 2019 tax year, the catalog of the transfer-pricing methods was revised and all the methods are now considered equal, without any preference on application. The tax law provides for the following transfer-pricing methods:
• The comparable uncontrolled price method
• The resale-price method
• The cost-plus method (significant change of the definition aligning it with the OECD definition)
• The transactional net margin method
• The profit-split method
If none of the above methods can be used, other methods may be applied, including valuation techniques. A Decree of the Ministry of Finance provides further details on the application of the valuation techniques for transfer-pricing purposes.
The revised Corporate Income Tax Act also incorporates new rights of the tax authorities to reclassify or not recognize a transaction under several conditions. Proper alignment of the
transaction nature and character is an element of the arm’s-length principle. Compliance with this principle is confirmed by a Management Board statement or TPR-C form as described below.
The Polish Decrees on transfer pricing also provide detailed rules regarding the preparation of comparability analyses as well as business restructurings.
Effective from the 2017 tax year, an obligation to prepare a threetiered standardized transfer-pricing documentation was introduced. It is amended from the 2019 tax year (and to a small extent from the 2022 tax year). The following are key rules:
• Since the 2019 tax year, depending on the type of transaction, the thresholds are PLN2 million or PLN10 million.
• For transactions concluded with entities located in a tax haven beginning from the 2022 tax year (applicability for the tax year beginning in 2021), the thresholds are PLN2.5 million for financial transactions and PLN500,000 for any other transaction. In the previous years there was a unified threshold for all transactions amounting to PLN100,000.
• The threshold requiring entities to have Master File documentation was changed. The Master File should be provided within 12 months after the end of the tax year, provided that consolidated financial statements are prepared by the group (and the group is consolidated by using full or proportional method), that the group has generated consolidated revenues exceeding PLN200 million in the previous tax year and that the Polish entity is required to prepare Local File documentation.
• The threshold for the preparation of benchmarking analyses was removed. Since the 2019 tax year, economic analysis is, in principle, obligatory. It is not limited to a benchmarking study as such but could be any study aimed at the test of arm’s-length results. Economic analyses as well as benchmarking studies covering comparable data and selection process should also be available in electronic form. They need to be revised every three years, or earlier, in the case of significant change of the market conditions. Starting from the 2022 tax year, regulations introducing the possibility to waive the preparation of economic analysis/benchmarking analysis were introduced for the following:
Controlled transactions concluded by taxpayers that are micro or small businesses (applicability for the tax year beginning in 2021)
Transactions other than controlled transactions concluded with tax havens, covered by the documentation obligation (applicability for the tax year beginning in 2021)
• Some types of controlled transactions are excluded from the documentation requirement. The relief from the compliance obligation covers the following:
Transactions concluded between Polish taxpayers in case none of the parties incurs tax loses in a tax year in question and do not benefit from tax relief resulting from operations in a special economic zone or concluded investment agreement
Transactions with transfer prices resulting from specific laws and regulations
From the 2022 tax year, transactions concluded according to safe harbor principles determined in the Polish Corporate Income Tax Law
• Safe harbors for selected service transactions and loans are introduced.
• The scope of Local File and Master File documentation was revised.
• A tax return on transfer pricing (TPR-C) is introduced, replacing the CIT TP return. It requires taxpayers to report a significant amount of information regarding intragroup relations, including the categories of transfer-pricing methods and the profitability achieved on the transactions and how it corresponds to the benchmarking results. As from the 2022 tax year, the TP Statement (statement confirming that the transferpricing documentation was prepared and the prices are of arm’s length) has been combined with the TPR-C form.
The Local File documentation must be prepared in Polish and in electronic form. However, the Master File may be provided in English (during a tax audit, the tax authorities may request that the taxpayer translate the Master File within 30 days). From tax year 2022, local transfer-pricing documentation must be prepared by the end of the 10th month after the end of the entity’s tax year, and TPR-C transfer-pricing information must be filed by the end of the 11th month after the end of the entity’s tax year.
Until the end of the 2021 tax year, taxpayers must submit a signed declaration confirming that local transfer-pricing documentation is in place and that the transfer-pricing policy used conforms with the arm’s-length principle within nine months after the end of the tax year. The statement needs to be signed by members of the management board and cannot be provided by the proxy. Lack of declaration or the filing of an untrue declaration is penalized based on the Penal Fiscal Code.
The regular documentation obligation covers restructuring processes if they exceed the above thresholds. Restructuring is defined as reorganization considering significant changes of trade or financial arrangements, agreements or their parts that result in shift of functions, assets or risks.
If the restructuring results in changes of taxable earnings before interest and taxes, amounting to 20% in comparison with prerestructuring conditions, special economic analysis in the Local File is obligatory. This special analysis follows Chapter IX of the OECD guidelines and must cover the following elements:
• Detailed description of business relations in pre- and postrestructuring model, including Function, Assets and Risk (FAR) analysis, business justification of the restructuring, description of expected benefits and options realistically available (for all parties to the restructuring)
• Determination of tax consequences of delineated transactions constituting the restructuring
• Determination of whether the restructuring resulted in profit potential transfer (for example, through transfer of valuable assets or intangibles, changes to the agreements, and transfer of organized part of the enterprise)
• Verification of whether the exit fee is due and determination of its value (including verification of relation between the exit fee and expected benefits)
If the Local File does not include such special economic analysis, the Local File may be found incomplete and penalties may be imposed on the taxpayer and individuals.
The Master File needs to be prepared (not provided) within 12 months from year-end.
Taxpayers must present transfer-pricing documentation within seven days after the date of the request of the tax authorities. However, from the 2022 tax year, the deadline for submitting local transfer-pricing documentation at the request of the tax authorities has been extended from 7 to 14 days.
If the tax authorities assess additional income to a taxpayer realizing intragroup transactions, the additional tax liability is calculated by the tax authorities to be a value of 10% of the additional income reassessed. The value of the additional tax liability is doubled if a taxpayer does not provide the transfer-pricing documentation required by the law or provides documentation that is incomplete or if the additional income reassessed exceeds a value of PLN15 million. If both of these conditions are fulfilled, the additional tax liability is tripled.
Penalties from the Penal Fiscal Code may be applied. For individuals, they may reach PLN40.7 million.
The APA regulations entered into force on 1 January 2006 and were changed in 2019. An APA concluded for a particular transaction is binding on the tax authorities with respect to the method selected by the taxpayer. APAs may apply to transactions that have not yet been executed or transactions that are in progress when the taxpayer submits an application for an APA.
In June 2006, Poland ratified the EU convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises (90/436/EEC).
Effective from 2015, it is possible to eliminate double taxation in domestic transactions.
Polish headquarters with consolidated revenues (as defined in the Accounting Act) in Poland and outside of Poland that exceeded in the previous tax year the equivalent of EUR750 million must file a CbCR report within 12 months after the end of the reporting year of the group. The first reporting year was 2016. In addition, Polish law includes a secondary filling mechanism (under this mechanism, if no agreement on the exchange of tax information exists between two given countries and if no other entity from the group is responsible for the preparation of a CbCR report, the Polish tax authorities may request the Polish entity to prepare a CbCR report).
Polish subsidiaries are required to file with the Head of Tax Administration a notification on which entity within the group is responsible for CbCR preparation. Such notification should be filed within three months after the end of the tax year (the exceptional deadline for the 2016 tax year was 10 months from the year-end).
(a) The lower rate applies if the recipient of the dividends is a company that owns at least 10% of the payer.
(b) The lower rate applies if the recipient of the dividends is a company that owns at least 15% of the payer.
(c) The lower rate applies if the recipient of the dividends is a company that owns at least 20% of the payer.
(d) The lower rate applies if the recipient of the dividends is a company that owns at least 25% of the payer.
(e) The lower rate applies if the recipient of the dividends is a company that owns more than 30% of the payer.
(f) The lower rate applies to royalties paid for copyrights, among other items; the higher rate applies to royalties for patents, trademarks and industrial, commercial or scientific equipment or information.
(g) The lower rate applies if the recipient of the dividends is a company that owns at least 10% of the voting shares of the payer.
(h) The lower rate applies to royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment.
(i) The lower rate applies to copyright royalties.
(j) This rate applies if the recipient of the dividends is a company that owns at least one-third of the payer.
(k) The 0% rate applies to among other items, interest paid to government units, local authorities, central banks and retirement funds. In the case of certain countries, the rate also applies to banks (the list of exempt or preferred recipients varies by country). The relevant treaty should be consulted in all cases.
(l) The 0% rate applies to royalties paid for, among other items, copyrights. The 10% rate applies to royalties paid for patents, trademarks and for industrial, commercial or scientific equipment or information.
(m) The 20% rate applies if the recipient of the interest is not a financial or insurance institution or government unit.
(n) The lower rate applies to know-how; the higher rate applies to copyrights, patents and trademarks.
(o) The 10% rate applies if, on the date of the payment of dividends, the recipient of the dividends has owned at least 25% of the share capital of the payer for an uninterrupted period of at least two years. The 15% rate applies to other dividends.
(p) The lower rate applies to royalties paid for the following:
• Copyrights
• The use of or the right to use industrial, commercial and scientific equipment
• Services comprising scientific or technical studies
• Research and advisory, supervisory or management services
The treaty should be checked in all cases.
(q) The lower rate applies to know-how, patents and trademarks.
(r) The 5% rate applies if the recipient is a company (other than a partnership) that holds directly at least 25% of the capital of the company paying the dividends.
(s) The 0% rate applies if the beneficial owner of the dividends is a company that holds directly at least 25% of the capital of the payer of the dividends for at least one year and if the dividends are declared within such holding period. The 5% rate applies to dividends paid to pension funds or other similar institutions operating in the field of pension systems. The 15% rate applies to other dividends.
(t) Because the rate under the domestic law of Poland is 19%, the treaty rate of 20% does not apply.
(u) The treaty with the former Federal Republic of Yugoslavia that applied to the Union of Serbia and Montenegro should apply to the Republics of Montenegro and Serbia.
(v) The lower rate applies to fees for technical services.
(w) The rate also applies to fees for technical services.
(x) The 20% rate also applies to certain services (for example advisory, accounting, market research, legal assistance, advertising, management and control, data processing, search and selection services, guarantees and pledges and similar services).
(y) The lower rate applies if the beneficial owner is a company (other than a partnership) that controls directly at least 25% of the capital of the company paying the dividends.
(z) The lower rate applies if the owner of the dividends is the government or a government institution. Under the United Arab Emirates treaty, the 0% rate also applies if the beneficial owner of the dividends is a company that is owned directly or indirectly by the government or governmental institutions.
(aa) The 10% rate applies to interest paid to banks and insurance companies that are beneficial owners of this interest and to interest on bonds that are regularly and substantially traded.
(bb) The 0% rate applies to certain dividends paid to government units or companies.
(cc) The lower rate applies if the recipient of the dividends is a company that owns at least 10% of the payer for at least 24 months or is a retirement fund.
(dd) The 4% rate applies if the interest is paid to a beneficial owner that is one of the following:
• Bank
• Insurance company
• Enterprise substantially deriving its gross income from the active and regular conduct of a lending or finance business involving transactions with unrelated persons
• Enterprise that sold machinery or equipment if the interest is paid with respect to indebtedness arising as part of the sale on credit of such machinery or equipment
• Any other enterprise, provided that in the three tax years preceding the tax year in which interest is paid, the enterprise derived more than 50% of its liabilities from the issuance of bonds in the financial markets or from taking deposits at interest, and more than 50% of the assets of the enterprise consisted of debt-claims against unrelated persons
The 5% rate applies to interest derived from bonds or securities that are regularly and substantially traded on a recognized securities market. The 10% rate applies in all other cases.
(ee) Under a most-favored-nation clause in a protocol to the treaty, the interest or royalties treaty rates are replaced by any more beneficial rate or exemption agreed to by Chile for interest or royalties in a treaty entered into with another jurisdiction that is a Member State of the OECD.
(ff) The 0% rate applies if the beneficial owner of the dividends is a company that holds at least 10% of the share capital of the payer of the dividends for an uninterrupted period of at least two years.
(gg) The treaty has not yet entered into force.
(hh) The 0% rate applies if the beneficial owner of the dividends is a company that holds directly at least 10% of the capital of the company paying the dividends on the date on which the dividends are paid and has held the capital or will hold the capital for an uninterrupted 24-month period that includes the date of payment of the dividends.
(ii) The rate is 10% if Switzerland imposes a withholding tax on royalties paid to nonresidents.
(jj) The lower rate applies if the recipient of the dividends is a company (other than a partnership) that owns directly at least 10% of the payer. Certain limitations to the application of the preferential rates may apply.
(kk) The lower rate applies if the beneficial owner of the dividends is a company that holds directly at least 25% of the voting power of the payer.
(ll) The 0% rate applies to dividends paid to a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends on the date the dividends are paid and has done so or will have done so for an uninterrupted 24-month period in which that date falls.
The 0% rate may also apply to dividends paid to certain pension funds.
(mm) The 10% rate applies to interest paid before 1 July 2013. For interest paid on or after 1 July 2013, the 5% rate applies unless an exemption applies. The 0% rate applies to such interest if any of the following conditions is satisfied:
• The beneficial owner of the interest is a company (other than a partnership) that holds directly at least 25% of the share capital of the payer of the interest.
• The payer of the interest holds directly at least 25% of the share capital of the beneficial owner of the interest.
• An EU/EEA company holds directly at least 25% of the share capital of both the beneficial owner of the interest and the payer of the interest.
(nn) For royalties paid before 1 July 2013, the 10% rate applies if Switzerland imposes in its local provisions a withholding tax on royalties paid to nonresidents. Otherwise, a 0% rate applies. For royalties paid on or after 1 July
2013, a 5% rate applies unless an exemption applies. The 0% rate applies to such royalties if any of the following conditions is satisfied:
• The beneficial owner of the royalties is a company (other than a partnership) that holds directly at least 25% of the share capital of the payer of the royalties.
• The payer of the royalties holds directly at least 25% of the share capital of the beneficial owner of the royalties.
• An EU/EEA company holds directly at least 25% of the share capital of both the beneficial owner of the royalties and the payer of the royalties. Furthermore, If Poland enters into an agreement with an EU or EEA country that allows it to apply a rate that is lower than 5%, such lower rate will also apply to royalties paid between Poland and Switzerland.
(oo) The lower rate (5% rate under the Singapore treaty) applies if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends for an uninterrupted period of 24 months.
(pp) The 0% rate applies to the following:
• Interest arising in Poland and paid to a resident of Canada with respect to a loan made, guaranteed or insured by Export Development Canada or to a credit extended, guaranteed or insured by Export Development Canada
• Interest arising in Canada and paid to a resident of Poland with respect to a loan made, guaranteed or insured by an export financing organization that is wholly owned by the state of Poland or to a credit extended, guaranteed or insured by an export financing organization that is wholly owned by the state of Poland
• Interest arising in Poland or Canada and paid to a resident of the other contracting state with respect to indebtedness arising as a result of the sale by a resident of the other contracting state of equipment, merchandise or services (unless the sale or indebtedness is between related persons or unless the beneficial owner of the interest is a person other than the vendor or a person related to the vendor)
(qq) The lower rate applies to copyright royalties and similar payments with respect to the production or reproduction of literary, dramatic, musical or artistic works and royalties for the use of, or the right to use, patents or information concerning industrial, commercial or scientific experience (with some exceptions).
(rr) The protocol to the double tax treaty or a new double tax treaty changing certain rates has not yet entered into force. The implementation process will be observed.
(ss) The lower rate applies if the ownership conditions described therein are met throughout a 365-day period that includes the day of the payment of the dividends. Under the Yugoslavia treaty, this condition applies only to the Republic of Serbia.
(tt) The lower rate applies if the beneficial owner is a company (other than a partnership) that holds 25% of the capital of the company paying the dividends.
(uu) The lower rate applies if the beneficial owner is a bank and the loan or credit has been granted for at least five years for the financing of the purchase of equipment or of investment projects as well as for the financing of public works.
(vv) The lower rate applies to royalties arising from the use or the right to use trademarks.
(ww) The 0% rate applies if the beneficial owner is a certain pension fund. The 5% rate applies if the beneficial owner is a company (other than partnership) that holds directly at least 10% of the capital of the company paying the dividends. The 15% rate applies in all other cases.