Tax reform - Tax transparency regime
The key changes to corporate income tax in 2021
Corporate income tax is the area where most changes can be observed this year. The most favourable changes include an increase in the scope of application of a lump sum tax and an increase in certain tax limits, including the limit for the CIT rate of 9%. The least favourable changes concern the taxation of limited partnerships and certain general partnerships, as well as the limitation of the application of abolition relief.
Taxation of CIT limited partnerships
As of 1 January 2021, limited partnerships become CIT taxpayers. According to the applied changes, the tax will be paid twice. Firstly, the tax on income earned in the tax year will be paid by the company (CIT). Later, after the distribution of profits from the already taxed income to shareholders, the tax on such distributions (PIT) will be paid by shareholders.
The new regulations also provide for a special exemption in this respect. 50% of the income obtained by a limited partner (not every limited partner - there are a number of requirements) from participation in the partnership will remain tax-free, but no more than PLN 60,000 per year (the limit applies separately to each limited partnership in which a given entity is a limited partner). However, the limited partnership could decide that the new rules will apply to the partnership and its income and expenses from 1 May 2021. In that case, the partnership becomes a corporate taxpayer on 1 May 2021.
The so-called “Estonian” CIT
As of 1 January 2021, limited liability companies and joint-stock companies are able to benefit from lump sum taxation on income of limited liability companies (the so-called “Estonian” CIT, as this reform was inspired by Estonian tax simplifications). Companies wishing to benefit from this solution must submit the relevant notification within the statutory deadline.
The amendments include two alternative solutions, i.e. lump-sum tax on income of capital companies and special investment funds, allowing faster settlement of depreciation of fixed assets. The new regulations set out a number of conditions that must be met by a taxpayer who wishes to benefit from the new lump sum taxation:
- First and foremost, the total revenue (together with output VAT) generated in the tax year preceding the year in which the company begins to use the flat rate may not exceed PLN 100 million.
- Additionally, a condition is also in force regarding the source of these revenues.
- It is also necessary to fulfil the conditions connected with average employment and concerning the shareholders of the company.
- The company must not prepare its financial statements in accordance with IFRS standards.
- Slightly different conditions have been provided for small taxpayers.
- The possibility to opt for the new flat-rate tax from 1 January 2021 applies, as a rule, only to those companies whose tax year coincides with the calendar year.
Higher limit for the 9% CIT rate
From 1 January 2021, the revenue limit for the current tax year entitling a company to benefit from the reduced 9% CIT rate has been increased from EUR 1.2 million to EUR 2 million. However, the preferential CIT rate can only be used by taxpayers who have the status of a small taxpayer or who have started a business (with certain exceptions), and these conditions have not changed.
Taxation of real estate companies
As of 1 January 2021, as regards corporate income tax, the obligation to settle tax on the sale of shares in so-called real estate companies has been transferred from the seller to the real estate company. At the same time, a solution was introduced for all income taxpayers entitling them to benefit from tax exemptions on income from buildings.
Reports on tax strategies
From 1 January 2021, it is mandatory for CIT taxpayers to prepare and publish a tax policy for the tax year. The tax policy is one of the forms of the company's response to the taxes imposed.
From 1 January 2021, a retail sales tax, also known as a trade tax, is in force. The subject of taxation is income from retail sales. The tax-free amount is PLN 17 million per month. The basis for taxation is the surplus of revenues from retail sales achieved in a given month over the tax-free amount. Two tax rates are stipulated: the first rate is 0.8% and covers monthly revenue above the tax-free amount, but not exceeding PLN 187 million; on the other hand, a rate of 1.4% is imposed on the excess of revenue over the amount of PLN 187 million.
New tax forms
As of January 2021, there are new forms related to obligations of general partnerships to provide information necessary to avoid becoming a CIT taxpayer. There are also new forms for the “Estonian” CIT and the statement on entities in which the taxpayer's shareholder owns rights.
On 1 July 2021 it is planned that the so-called "pay and refund" mechanism relating to withholding tax, will come into force. It was formally introduced in 2019, but postponed for over two years. If annual payments to a given entity subject to WHT reach PLN 2 million, as a rule, tax will have to be paid on payments above this amount, and the tax office will decide on the possibility of its refund.
As of 1 January 2021, the scope of the content of local transfer pricing documentation concerning transactions with entities from so-called “tax havens” has been extended by adding a requirement to provide an economic justification for the transactions. The list of entities obliged to prepare local transfer pricing documentation has also been extended.