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Upcoming income tax changes

Below you will find a summary of key income tax-related changes provided in the draft bill of September 15, 2020.

They are supposed to take effect as early as at the start of 2021.

1. Limited partnership [PL: spółka komandytowa] with registered office or central administration in Poland will be covered by CIT.

• In practice, general partners should be subject to single taxation as they should hold the right to deduct a respective part of the tax amount paid by the limited partnership from their income tax.

• Limited partners, on the other hand, will be subject to double taxation. While the draft bill provides for income tax exemption, it will apply to a limited extent because: (i) only 50% of the income generated by limited partners from their share in the profits of the limited partnership will be covered by such exemption, and no more than PLN 60,000 in a financial year for each limited partnership in which the taxpayer acts as a limited partner; (ii) in order to apply the exemption, it is necessary to fulfill a range of additional obligations (e.g.
a limited partner cannot serve as a board member of a general partner, be affiliated with
a shareholder or management board member of the general partner, or hold [whether directly or indirectly] over 5% of shares in the general partner).

• Pursuant to transitional regulations: (i) the payment of profits generated by limited partnerships before January 01, 2021 should be governed by the regulations that have applied so far; (ii) a general partner will be allowed to reduce the amount of income from
a limited partnership by a corresponding part of the loss incurred by such partnership.

• Limited partnerships and ordinary partnerships (which will become CIT payers) whose financial year does not coincide with a calendar year are obliged to close their accounting books as of December 31, 2020.

2. Ordinary partnership [PL: spółka jawna] with registered office or central administration in Poland will be covered by CIT if the list of partners includes any entity other than a natural person, or the identity of partners is not disclosed to tax authorities.

3. When shares or all rights and obligations in a so-called “real estate company” (i.e. an entity in which real properties located in Poland or interests in such properties account for at least 50% of the market value of assets within any period of 12 consecutive months) are sold, such company will be obliged to pay income tax on such profits at the 19% rate to the bank account of a competent tax office until the 7th day of the month following the one in which the income was generated, if at least one of the parties to the transaction does not have a registered office or central administration in Poland, or at least one of the parties is a natural person who does not have a place of residence in Poland. In case a “real estate company” does not have sufficient information about the transaction value, tax should be paid at the rate of 19% of the market value of the sold shares or rights and obligation.

4. There is going to be a new obligation to designate a representative for tax-related purposes; it will apply to “real estate companies” whose registered office / central administration is located outside the EU/EEA (failure to comply with this obligation carries a fine of up to PLN 1 million). Such representative will perform taxpayer’s duties for the company/partnership, and will bear joint-and-several liability with the company/partnership for tax obligations managed by the representative for and on behalf of the company/partnership.

5. Moreover, “real estate companies” and any taxpayer holding (whether directly or indirectly) shares or rights and obligations in such companies/partnerships are obliged to provide the Head of the National Revenue Administration with information – on an annual basis – about individuals/entities that have (whether directly or indirectly) shares or rights and obligations in such companies/partnerships.

6. Taxpayers whose income in the preceding year exceeded the amount corresponding to EUR 50 million, “real estate companies” and tax capital groups (regardless of the income value), will be obliged to prepare and publish (at their websites) reports on the implementation of their tax strategy. Such report should include the following elements, among other: 1) a description of the taxpayer’s approach to processes and procedures related to: (i) the performance of tax obligations; (ii) voluntary forms of cooperation with the National Revenue Administration; (iii) the performance of MDR obligations; 2) information about transactions with specific types of entities; 3) information about the submitted applications for advance tax rulings; and 4) binding information about applicable tax rates.

7. Transfer of liquidation assets to shareholders/partners of the liquidated entity will be CIT-taxable.

8. The income threshold allowing taxpayers to apply the reduced 9% CIT rate will be increased to the equivalent of EUR 2 million (from EUR 1.2 million).

9. It will be possible to extend the application of exemption from tax on income from buildings in case the epidemic state related to the spread of SARS-CoV-2 is in effect in Poland after December 31, 2020.

10. Transfer pricing amendments with respect to tax havens: (i) the documentation threshold for controlled transactions with tax havens will be set at PLN 100,0000; (ii) it will be possible to estimate the value of transactions with an entity from a tax haven, other than controlled transactions, if the beneficial owner has the registered office / central administration in a tax haven; (iii) an obligation to document transactions with entities from tax havens if the beneficial owner has the registered office / central administration there; (iv) an extended range of documentation obligations for transactions with tax havens – providing an economic justification and a description of a benefit test (after it has been conducted).

11. Transfer pricing amendments with respect to COVID-19: (i) exemption from the obligation to prepare transfer pricing documentation for domestic transactions in case revenues in the financial year in which the state of COVID-19 epidemic (or epidemic threat) applied dropped by at least 50% compared to the previous year (if a given entity could not use the exemption from the obligation to prepare a local file due to the loss it incurred); (ii) lifting the obligation to have an affiliated entity’s statement on adjustments of transfer prices, made during the state of COVID-19 epidemic (or epidemic threat).

12. New limitations will apply to tax loss carryforward, e.g. in case a taxpayer has taken over another entity or acquired an enterprise or a business unit thereof, which results in: (i) changes (incl. partial ones) to the scope/object of business operations; (ii) a situation in which at least 25% of shares in a taxpayer are held by entities that did not hold such rights as of the end of the year in which the loss was incurred.

13. The possibility to set individual depreciation rates for used fixed assets for the first time in the register of fixed assets of the taxpayer, only if the purchaser is able to prove that fixed assets were used prior to its acquisition (applicable also for buildings).

14. The possibility to increase and decrease depreciation rates for fixed assets used for tax-exempt operations will be restricted while such exemption applies.

15. Flat-rate tax will apply to freelance professions that could not use this form of taxation until now. The tax rates will be reduced.

16. The so-called “tax abolition relief” will be limited to PLN 1,360.

If you have any questions, let us know.

Contact

Małgorzata Wąsowska
Certified Tax Advisor / Partner / Head of Tax
malgorzata.wasowska@actlegal-bsww.com
+48 22 420 59 59

 

22.09.2020

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