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Taxes: Taxes of company

Send Print Download added: Patrycja Operacz | 2017-05-15 10:11:22
invest in poland, taxes, income tax, value added tax, tax on civil law transaction, custom and excise tax, duty-free zone, customs bonded warehouse, local taxes, stamp duty

Taxes of company include information about: income tax, value added tax, tax on civil law transaction, custom and excise tax, duty-free zone, customs bonded warehouse, local taxes, stamp duty.

Income tax

Income tax is governed in the Corporate Income Tax Act, hereinafter referred to as ‘CIT’, and the Person-al Income Tax Act, hereinafter referred to as ‘PIT‘. A regulation type that should be used in a case depends on the legal form of an entity. In consequence, either the income of the entity as a whole will be taxed (i.e. CIT form a limited company and joint stock company) or the incomes of particular shareholders (i.e. limited partnership or registered partnership). In the second case mentioned above (i.e. companies in the Polish legal system named as partnerships), in order to establish if the taxation will be in accordance with PIT or CIT Act, the legal status of the shareholder of the partnership must be considered. If the partner is a natural person — he will be taxed directly from the incomes gained by the partnership, in accordance with PIT Act. If the partner is a limited liability company or a joint-stock company — the entity will be taxed directly from incomes gained by the partnership in accordance with CIT Act.

 

Subject to taxation with income tax is:

According to CIT:

  • a legal person,
  • an organisational entity without corporate personality except partnerships (but not all types of partnerships),
  • limited joint-stock partnership,
  • a company without corporate personality that has its place of residence or board of directors in another country, where, according to the law of this country, it is treated as a legal person and all its income is taxed in that country regardless of the place of generating the incomes.

According to PIT:

  • a partner in a limited partnership or registered partnership, if s/he is a natural person.

Taxpayers that have their place of residence or board of directors in Poland (residents) are liable to a tax obligation for total profits regardless of the country generating those profits. Taxpayers that don’t have their place of residence or board of directors in Poland (non residents) are liable to a tax obligation only for profits generated in Poland.

 

Taxation of partnerships

Incomes and costs generated by a partnership are taxed separately by each partner according to the proportion of possessed shares and with the appropriate tax rate from PIT or CIT Act, depending from the legal status of each partner.

 

Branches of foreign companies

Foreign investors have the possibility to choose a legal form for their activity in Poland. This could be a partnership, a capital company or a branch. The branch is, in general, treated for tax purposes as a Polish company, with the consideration of the legal form of its head office. Only Polish-generated incomes and costs are subject to Polish taxes. From the legal point of view a branch is not a separate entity, but a unit of a foreign company. Therefore, there is no withholding tax on profi ts transferred to its head office.

 

Tax capital group

It is possible to optimise corporate income tax (CIT) obligations by forming a tax capital group. The main advantage of this solution is the calculation of a taxable profit by adding the profits and losses of all the companies in the group. However, the conditions that have to be fulfilled are highly restrictive.

 

A group can be formed only by at least two limited liability and/or joint-stock companies, having their registered office within the territory of Poland, if:

  •  an average share capital of each company in the group amounts to at least PLN 1,000,000,
  • one of companies in the group, referred to as the holding company, owns 95% of shares directly in the share capital of other companies, called subsidiaries,
  • there are no other relations in the group and also with companies outside the group,
  • all companies in the group have no tax arrears,
  • the ratio of profit to income generated by the group in every tax year amounts to at least 3%.

The legal basis for a tax capital group is an agreement for three years, in the form of a notary deed that has to be registered at a tax office. Companies from the group cannot use any tax exemptions.

 

Transfer pricing

All transactions carried out between related individuals and/or corporate entities are under the special supervision of tax authorities. The reason for this is the protection against the transfer of profits of the related entity to the country, which has more favorable tax rates.

 

According to Polish regulations, a relationship exists when:

  • an entity participates directly or indirectly in the management or control of another entity or holds at least 25% of shares in another entity (capital relationship),
  •  there is a familiar relation or other relation resulting from an employment between individuals who act as a manager or a supervisor in different corporate entities and/or the same individuals act as a manager or a supervisor in the same time in different entities.

 

If a relationship exists, each one of the related entities are obliged to prepared a document called: Transfer Pricing Policy, which should describe all transactions between the related entities and include amongst others things a calculation of prices and point out the risks inherent to each party. The aim of such documentation is to show, that the conditions of the transactions are the same as those between non-related entities. In the case of a tax control the documentation has to be presented within seven days of the date of request.

 

If prices do not comply with the arm’s length principle, the tax authorities are entitled to estimate the value of transactions using one of the following methods:

  • comparable uncontrolled price method,
  • resale price method,
  • reasonable margin (cost plus) method,
  • transaction profit method.

 

If a profit or a loss calculated by the tax authorities is respectively higher or lower than that given by an entity, a 50% penalty tax rate is applied.

 

Since 2006, Polish taxpayers may apply to the Minister of Finance with motion to conclude the agreement regarding the confirmation of the used Transfer Pricing Policy. This is known as the Advanced Pricing Agreement (APA) and is related not only to transactions between Polish taxpayers, but also between Polish and foreign entities.

 

The main advantage of the APA is the formal confirmation by the tax authorities that the calculation and application of transfer prices chosen by a taxpayer are correct. The APA obliges tax authorities to accept presented methodology.

 

The APA concerns transactions which shall both be concluded after the submission of an application for the APA or those that started before and are currently in progress. It does not refer to transactions which were started before the submission of an application and on the APA completion date were subject to any tax control or proceedings.

 

Main rules starting from 01.2017

Documented items shall be taxpayer’s:

  • transactions with associated enterprises and
  • other dealings which are disclosed in the books of account of the year materially affecting the taxpayer’s income (loss).

This shall include transactions and dealings of one type exceeding more than EUR 50-thousand in a tax year.

 

As a rule, taxpayers are obliged to present the complete transfer pricing documentation within 7-days of the request from the tax authorities. However, the intention of the Ministry of Finance is that the transfer pricing documentation needs to be prepared no later than by the tax return fi ling deadline. A member of the management board of a local enterprise shall have to sign a statement saying that the documentation is complete and has been prepared within the statutory deadline, and enclose the statements with the tax return.

 

The taxpayers are obliged to draw up tax documentation if their revenues or costs as defined by the provisions of accounting exceeded, in a tax year, the equivalent of EUR 10,000,000. They shall append to the tax statement for the tax year a simplified report on the transactions with related entities or other events occurring between related entities, or in connection to which the payment of an amount due is made directly or indirectly for the benefit of a subject having its place of residence, seat, or management office in a territory or a state applying harmful tax competition.

 

The obligation for documentation will be determined by:

  • a certain level of revenues and expenses,
  • overdraft thresholds of value of transactions/other dealings of one type, which are fixed depending on the level of revenues.

 

Enterprises whose revenues or expenses significant to the accounting regulations calculated on the basis of the books of account do not exceed EUR 2 million in a previous tax year will be exempt from the transfer pricing documentation obligation.

 

If the taxpayer was obliged to have transfer pricing documentation for a given tax year, they will also be obliged to prepare it for the following tax year as well, regardless of their revenues and expenses significant to the accounting regulations in a given year for which the documentation was prepared.

 

CFC provisions

New legal provisions concerning Controlled Foreign Company (CFC) came into force at the beginning of 2015 and imposed a 19% corporate income tax at Polish taxpayer’s level on income generated by the taxpayer’s CFCs.

 

The aim of the Controlled Foreign Company (CFC) provisions is to discourage Polish parent companies from tax planning with use of non-Polish entities. The Polish taxpayers will be subject to Polish tax on income earned by their controlled foreign companies even if income is not distributed from the non-Polish company. Subsidiaries subject to CFC rules are those, which have passive income taxed with a rate lower than 14,25% and the Polish parent company holds at least 25% of shares either directly or indirectly.

 

Subsidiaries seated in tax havens are also treated as CFC. CFC provisions will not apply if the foreign corporation conducts real business activities.

 

The objective of the CFC rules is to penalize transactions that are artificial and whose key objective is to obtain a substantial tax benefit. Transactions will be considered artificial, if they are excessively and unnecessary complex or have no economic substance. Tax authorities may assess additional tax liability, which disregards artificial constructions if they prove that a taxpayer gained a substantial tax benefit in comparison to a standard transaction and the taxpayer is not able to provide grounds for the business reasons of that transaction.

 

Subject of taxation

The subject of taxation is the profit regardless of the income source it was received from. Profit is the amount of surplus between revenues and tax-deductible costs received in a fiscal year. If the amount of tax-deductible costs exceeds the amount of income, the difference is a loss. If a taxpayer incurs a loss, he can reduce profit in following five years by the amount of this loss, but the reduction cannot be higher than 50% of the loss in one year.

 

However, in some cases pure revenue is to be taxed. These are: dividends, licence fees (i.e. interests from loans, royalties) as well as provisions of intangible services (such as management and advisory services or market research). It is important that taxation of the above should be done with consideration of the double taxation avoidance agreements. Additionally in case of related entities within EU and EEA, there is the tax exemption for dividends and for licence fees.
The Polish legislator excluded some incomes and costs from the taxation subject; therefore they cannot be taken into consideration by calculating the profit.

 

This regulation applies, for example, in cases of loan and credit interests paid by a Polish corporate entity to its affiliates. If all the liabilities of a Polish corporate entity from different sources (such as loans, credits and invoices), due to its affiliates who hold no less than 25% of shares, exceed three times the share capital value of the Polish corporate entity, the loan or credit interests are not recognised as a tax-deductible cost in the amount in which a loan or credit exceeds a triple share capital value. This limitation was put into force to avoid so-called ‘thin capitalisation’, which refers to the financing of a current business activity via loans and credits. This can easily be paid back to the borrower instead of capital that can be paid back to shareholders only in case of the dissolution of the capital company.

 

Examples of other non-deductible costs:

  • non depreciated value of fixed assets that are spent for free,
  • most penalties and fines,
  • expenditures for a car over determined limits,
  • representation expenses.

 

The definition of revenues includes, amongst others things, due revenues, even if they are not received, excluding payments in advance, free and partially free benefits.

 

Tax rates

The special exemption concerns licence dues and interests and dividends paid by a Polish capital company to another capital company outside Poland or the EU. Regarding licence dues, and interests, the exemption came into force on July 1st, 2013 and applies if the below conditions are fulfilled:

  • an EU capital company holds directly no less than 25% shares in a Polish capital company,
  • a Polish capital company holds directly no less than 25% shares in a capital company from an EU country,
  • other capital companies, whose income is taxed in an EU country, directly holds no less than 25% shares of both aforementioned capital companies.

 

With respect to dividends, the exemption applies when a capital company from an EU country directly holds no less than 10% of shares from a Polish capital company for a continuous period of at least two years. Both acts (CIT and PIT) allow a number of exemptions or lower tax rates for the income profit generated by non-residents in Poland.

 

Therefore a non-resident’s place of residence and regulations regarding double tax treaties, of which Poland is part, should be taken into consideration when settling the final tax rate.

 

The exemption will not apply to arrangements between related parties that are artificial and the main driving force behind the arrangements is to obtain a tax advantage.

 

An arrangement or contract shall be deemed artificial it is carried out without justifiable business or economic reasons, in particular when shares of the paying dividend company are transferred or the company generates income which is further transferred through a dividend distribution or another method of profit distribution.

Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.

Obligations

According to the general rule, a payer of income tax is obliged to pay a tax advance before the 20th day of the month that follows the month in which the tax obligation arose or in case of ‘small’ taxpayers: before the 20th day of the month that follows the quarter in which the tax obligation arose. Additionally, a taxpayer has an obligation to submit an annual tax declaration within three months following the year in which tax obligation arose.

 

In case of dividends, licence dues and intangible services paid to affiliates, and to be taxed with withholding tax (only if the tax exemption described above is not applicable), the tax has to be paid within seven days following the month in which the tax obligation arose. This rule is however applicable only to those foreign affiliates/shareholders that are legal persons. In case of the affiliates/shareholders (taxpayers of WHT) that are the natural persons the term is twenty days following the month in which the tax obligation arose.

 

Anti-Tax Avoidance Clause

The Anti-Tax Avoidance Clause is applicable in a situation where the tax payer has striven to avoid taxation, i.e. undertook activities mainly aiming to attain a tax advantage, contradictory, under given circumstances, to the object and aim of the tax law. Such an activity (or more activities) pursuant to the clause will not result in attaining a tax advantage, if the manner of action was artificial.

 

An artificial manner of action is defined in the draft as such which would not be applied by an entity acting reasonably and striving for lawful aims other than attaining a tax advantage contradictory to the object and aim of the tax law.

 

When assessing the artificiality of a manner of action, tax authorities take into consideration factors including, in particular:

  • unjustified division of operations,
  • engaging intermediary business entities despite a lack of economic justification,
  • elements leading to a state identical or similar to the outset state,
  • elements cancelling each other out or compensating each other,
  • economic risk higher than expected benefits other than tax related existing to a degree allowing one to deem that a reasonably acting business entity would not choose such a manner of activity.

 

An activity is deemed to have been undertaken mainly for the purpose of attaining a tax advantage if the other aims of the activity indicated by the tax payer are deemed to be of little significance.

 

The clause’s mechanism is to consist in the questioned activity or a set of activities remaining valid and effective in the light of civil law, but their tax related impact being determined to be different than what would stem from their formal and legal form. In this case, tax affects will be determined either by denying the tax payer’s activities any effectiveness in tax terms or they will consist in changing the activity’s classification to one that the business entity could have performed if it had acted reasonably, striving for lawful aims other than attaining a tax advantage contradictory to the object and aim of the tax law.

 

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Value added tax

The Value Added Tax Act (hereinafter referred to as ‘VAT‘) uses the following terms:

  • output tax - when resulting from a sale, a salesman is obliged to show an invoice and to pay to the bank account of a tax office,
  • input tax - a tax that a buyer of goods or services has to pay to a salesman, but has the possibility to deduct it from his own output tax or to receive it back from a tax office.

Subject of taxation:

  • payable delivery of goods and payable providing of services in Poland,
  • export of goods,
  • import of goods,
  • intra-community acquisition of goods with remuneration in Poland,
  • intra-community delivery of goods.

Taxable person:

  • a legal person,
  • an organisational entity without corporate personality,
  • individuals that carry out an independent business An intra-community acquisition and delivery are activity (VAT has its own definition of business lowed only for entities that are registered as an EU activity, therefore every case should be analysed VAT payer. separately).

VAT payers are also entities who:

  • perform intra-community delivery of new transport means,
  • perform intra-community acquisition of goods in Poland,
  • are recipients of services provided or goods delivered by taxpayers having their registered seat. Fixed place of business activity or place of residence outside Poland

 

A consignment stock is a warehouse where raw materials moved by a supplier - who is a VAT payer in another EU state than Poland - from its warehouse in another EU state other than Poland are stored. The consignment stock is located in Poland and managed by a Polish VAT payer.

 

This procedure is a simplification that allows suppliers not to register for VAT in Poland, because all formalities connected with taxation and tax reports are completed by a Polish VAT payer.

 

Entities having their registered seat, fixed place of business activity or place of residence outside EU and who are subject to registration as a VAT payer in Poland are obliged to appoint a tax representative. This obligation does not concern entities from any EU member state, however they may optionally appoint the tax representative.

 

Entities that perform activities mentioned in the Subject of taxation are obliged to register as an active VAT payer before undertaking the first taxable activity. From the first activity they have to issue invoices with the proper VAT rate, according to special regulations.

 

There is the possibility of not registering for VAT, if an entity foresees that the volume of a total annual turnover will be lower than 150,000 PLN. In this case, an entity is not obliged to tax its turnover, however is also not eligible to deduct input tax from purchases

 

An intra-community acquisition and delivery are allowed only for entities that ae registered as an EU VAT payer.

Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.

Obligations

A VAT payer has an obligation to submit a monthly tax declaration until the 25th day of the month following the month in which the VAT obligation arose or, in the case of ‘small’ VAT payers, before the 25th day of the month following the quarter in which the VAT obligation arose. In a VAT-declaration, a VAT payer has to show the difference between output tax resulting from sales, and input tax resulting from purchases. In case of a surplus of output tax, a VAT payer is obliged to pay this surplus to a bank account of a tax office within a time limit set forth for tax declarations. In case of a surplus of input tax the taxpayer can apply for VAT returns on his bank account or assign it to the next settlement period. In the case of an importing turnover, however is goods VAT shown in a customs declaration should be paid within 10-days from the date of customs clearance. There are some possibilities to save the VAT obligation in case of the import of equipment or factory facilities.

 

VAT return from tax office

VAT may be recovered by two methods - indirect and direct. The indirect return of input tax is the most common method for companies which have monthly sales and expenses on a constant level. A VAT payer may recover the input tax via deduction from output tax. The direct tax return means the refund of VAT by money transfer from the tax office in the amount of VAT paid during the purchasing process. This method is common for the start-up phase, like industrialisation or purchasing of assets, when input VAT is accumulated. The return of VAT is generally made within 60 days under the condition that Tax Offiice will not suspend this period because of control in a VAT payer company. The VAT act also governs the shorter term of 25 days for refund, but only on certain conditions. All the above mentioned deadlines may be easily extended by the tax office during the tax control.

 

Standard Audit File for Tax

Standard Audit File for Tax (hereinafter: SAF-T) is the format of tax books and accounting documents in which taxpayers (that keep these books using computer software) are be required to forward them to the tax authorities at their request.

 

The obligation to provide data in the Standard Audit Files for Tax format shall apply to those taxpayers who keep tax books using computer software. The tax authority can request the transfer of all or parts of those books and accounting documents by electronic means or storage media, in the electronic form corresponding to the logical structure, indicating the nature of tax books and the period to which they relate. Furthermore, the taxpayer is required, without being requested by the office, to submit monthly (until the 25th day of the month) data resulting from the VAT records in the SAF-T format.

 

From the 1st of July 2016, the obligation to provide data in the Standard Audit Files for Tax format shall initially apply only to:

  • Taxpayers, payers and collectors who are large enterprises significant to the Act of the 2nd of July 2004, on Freedom of Economic Activity,
  • Taxpayers, payers and collectors who are not enterprises.

Large enterprise is the enterprise which within at least one of the last two financial years has:

  • employed on average more than 250 employees, or
  • achieved an annual net turnover from sale of goods, products and services and financial operations in excess of the equivalent in PLN of EUR 50 million or total assets on its balance sheet at the end of one of those years exceeding the PLN equivalent of EUR 43 million.)

For other entities, i.e. taxpayers, payers and collectors being micro-enterprises, small enterprises and medium enterprises, the obligation to provide data in the Standard Audit Files for Tax format at the request of the tax authorities, will only take force from the 1st of July 2018.

The monthly obligation to provide data resulting from VAT records without the tax authority’s request will be imposed on:

  • small and medium enterprises - from the 1st of January 2017,
  • micro-enterprises - from the 1st of January 2018.

 

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Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.

Tax on civil law transaction

With respect to a business activity, the following transactions amongst others are taxed with tax on civil law: Tax on civil law transactions should be paid within 14 days from the date of a transaction.

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Custom and excise tax

Since 1st May 2004, Polish territory is part of the Customs Union, a fact which has caused significant changes in customs clearance regarding import and export goods to and from Polish territory. Any existing customs barriers between Poland and EU member states disappeared. The transfer of goods between the EU member states is realised by intra-community acquisition and supply of goods as well as services. Additionally on 1st January 2008 Poland joined the Schengen zone, which resulted in the abolition of border check points between Poland and its EU neighbor countries.

 

The transfer of goods between Poland and non-EU countries is still governed by the Customs Code and is classified as import-export. All regulations related to customs clearance, customs rates and obligations are governed on the EU level, although the local country practice is still important and is recognised as binding and valid (i.e. the technical and procedural aspects).

 

The import of goods, such as raw materials from a non-EU country into the EU and eventually to Polish territory, creates an obligation to pay customs and VAT in the country of customs clearance or country of destination for supply. The procedure depends on obligations of the supplier and delivery procedure.

 

Excise tax

The act of Excise Tax regulates production and trading of excise-duty goods such as: electrical products, electricity, alcohol, tobacco products (including dried tobacco), motor fuel, heating oil and gas and passenger cars.

 

Taxable person:

  • a legal person,
  • an organisational entity without corporate personality,
  •  individuals that carry out transactions taxed by excise tax.

 

Subject to taxation

  • production of excise-duty goods,
  • taking out excise-duty goods from a tax warehouse,
  • sale of excise-duty goods in Poland,
  • import of excise-duty goods,
  • intra-community acquisition of excise-duty goods.

Tax rates are expressed as percentage of the value of goods or on a volume basis (fixed rate per product unit).

 

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Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.

Duty-free zones

A duty-free zone (DFZ) is a separate entity not in habited as part of a larger customs area, which is treated as a foreign territory and for which a uniform customs system applies. All entries and exits within DFZ are under customs supervision.

 

The advantage of a DFZ is that foreign merchandise (other than from EU or EEA) brought in are sold without import duties, excise tax and VAT. The duty-free zones in Poland are located on the main communication routes (airports, harbours, border crossings).

 

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Customs bonded warehouse

A customs bonded warehouse is a building or other secured area in which dutiable goods (other than from EU or EEA) may be stored, manipulated or undergo manufacturing operations without payment or duty under bond and in the joint custody of the importer, or his agent, and the customs officers. It may be established and managed by the state or by private enterprise. In the latter case a customs bond must be posted with the government.

 

The main advantage of a customs bonded ware house is that all payments connected with a goods import (import duties, excise tax and VAT) are postponed until the moment of their withdrawal for consumption within Poland.

 

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Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.

Local taxes

Tax rates or exemptions in the property tax and vehicle tax are determined by a commune council, but they cannot be higher than limits given by the legislator. Examples of exemptions established by the legislator:

Property tax:

  • real estate used by associations to conduct a statutory activity among children and youth,
  • lands and buildings registered individually in the register of historical monuments - on certain conditions,
  • non-arable lands, ecological arable lands, excluding used for business activity.

Vehicle tax:

  • historical vehicles,
  • as a reciprocity rule - vehicles possessed by foreign embassies, consulates and other missions, that use diplomatic privileges and immunity upon acts, agreements or customs.

Forest tax:

  • forests with woods no older than 40 years,
  • forests registered individually in the register of historical monuments.

Agricultural tax:

  • arable lands of the lowest quality,
  • lands for a new farm up to the area of 100 hectares - on certain conditions.

 

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Stamp duty

Stamp duty is collected from state administration agencies’ activities that are specified in regulations, i.e.:

  • registration for VAT: PLN as a rule registration for VAT is not payable, 170 PLN applies only to confirm the registration, which shall be issued at the request of the taxpayer,
  • giving a power of attorney: PLN 17.00, certificate that an entity has no overdue tax liabilities: PLN 21.00.

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Source: Polish Investment and Trade Agnecy, Poland your business Partner. Invest in Poland, 2016.