The Polish New Deal – what about CIT taxpayers?

Please see the most important changes on the grounds of CIT:

1. New reliefs, to include:

• increase from 150% to 200% of the amount eligible for deduction of qualified costs in R&D Centre (CBR), including those related to obtaining and maintaining a patent, right of protection for a utility model, right from registration of an industrial design;
• new deductions, including a possibility to (i) deduct 200% of qualified costs related to employment of employees engaged in R&D activity for taxpayers who are not R&D Centers (CBR) and a possibility to (ii) deduct from income receivables (revenues) of employed individuals for qualified costs of R&D activity, which the taxpayer did not deduct due to tax loss incurred or the amount of income was lower than the amount of deductions applicable;
• prototype relief, which covers costs incurred at the stage of trial production of a new product or its introduction on the market, and pro-growth relief, the purpose of which is to allow double recognition for CIT purposes of  costs related to increasing of revenues from sale of products;
• consolidation relief, which allows a taxpayer who incurs qualified expenses for the acquisition of shares in a foreign company (limited liability company or joint-stock company) to reduce the tax base by these expenses in the year they are actually incurred;
• robotization relief allowing to deduct from the tax base 50% of tax deductible costs incurred for robotization.

2. The possibility of simultaneous use of R&D tax relief and IP Box by a taxpayer generating income from intellectual property rights which is covered by the IP Box regime.

3. New holding regime aimed at Polish holding companies owning domestic or foreign subsidiaries, consisting of two basic pillars: (i) CIT exemption of 95% of the amount of dividends received by the holding company from its subsidiaries, (ii) CIT exemption of profits from disposal of shares in subsidiaries (local participation exemption).

4. Modernization of withholding tax procedure provisions, to include:

• WHT “pay and refund” mechanism to be introduced as of 2022 will cover dividends, interest and royalties and will not cover payments for services subject to WHT;
• A taxpayer will be able to include payments covered by particular DTTs (and not solely payments subject to EU Directive exemptions) in his application for WHT opinion from the tax authorities.

5. New tax on so-called flipped income in order to eliminate the possibility of obtaining a tax advantage through tax schemes designed to transfer income to jurisdictions with insignificant effective tax rate.

6. New provisions concerning flat-rate income taxation of companies, including extension of the catalog of entities entitled to opt for lump sum taxation to include limited partnerships and joint-stock partnerships.

7. New solutions for the illegal employment of workers, reflected in imposing tax burdens on fraudulent employers.

8. Relief for taxpayers who incurred expenditures for the purchase of payment terminal and expenditures related to maintenance of payment transactions, including expenditures for use of terminals not owned by a taxpayer.

9. Amendments to the terms and conditions of tax exemption in PIZ and SEZ.

10. Amendments relating to depreciation, to include:

• exclusion from depreciation of real estate and rights of a residential nature starting from 2022;
• inability to make depreciation write-offs for tax purposes exceeding depreciation or redemption write-offs made in accordance with accounting regulations in real estate companies.

11. Digitization of accounts, including the obligation to submit tax records in a standardized form starting from 2023.

12. New “thin capitalization” regulations, i.e. removal of interpretation doubts to the disadvantage of the taxpayer by indicating directly that the taxpayer may recognize as deductible costs either the surplus of debt financing costs within the limit determined by the value of 30% of EBITDA obtained in the tax year or may use the “safe harbor” (the amount of surplus of debt financing costs not exceeding PLN 3M) without the possibility to combine both limits at the same time (30 EBITDA + PLN 3M).

13. Introduction of provisions to counteract the reduction of tax income within a group of related parties as a result of the conversion of debt financing to equity financing, whereby a taxpayer is granted with a loan from a related party which is subsequently converted to equity (e.g. through cash contribution to another company).

14. Introduction of provisions limiting the possibility of recognizing for CIT purposes particular payments (“hidden dividend“).

15. Clarification of the management board criterion on the territory of Poland in relation to taxpayers without a registered office in Poland.

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