Tax Report 2021
It’s official. Changes concerning income taxes will come into force starting from 1 January 2021.The majority of the changes entail new obligations for PIT and CIT taxpayers. Some of the changes can be viewed in a positive light, however, especially considering the current situation connected with the COVID-19 pandemic (e.g., in respect of TP obligations, deductibility of donations made for the purpose of combating COVID-19). Please find below an outline of the changes (divided into segments due to the sheer number of items) and feel free to contact us regarding issues which will directly affect your business.
Common solution for taxpayers (both natural persons and legal entities) in respect of donations made for the purpose of combating COVID-19. Taxpayers who make a donation to an authorized organization dedicated to combating COVID-19 by the end of the year will be able to deduct up to 200% of the donation amount from their tax base (in subsequent periods, 150% of the donation between January 1 and March 31, 2021 and 100% between April 1 and the end of the month in which the epidemic is called off.
Personal Income Tax (PIT)
An effective increase in taxation for partners in limited partnerships - for natural persons (partners in limited partnerships) this means that income earned from such a partnership will be treated as dividends and taxed at the 19% PIT rate. It is expected that limited partners will be provided with an exemption of up to 50% of the company's revenue, but not more than PLN 60,000 per year (once certain conditions have been met). For general partners, CIT paid by the company in proportion to the general partner's share in the company's profit is deducted from the dividend tax. Therefore, this change constitutes an effective taxation increase for partners due to tax being first applicable at the company level and subsequently to the partners themselves.
Withdrawal of the tax abolition relief - these regulations apply to Polish tax residents on short-term assignments abroad. Effective as of 1 January 2021, the tax abolition relief will be limited to PLN 1360, which basically means its complete withdrawal. The abolition relief is an additional tax deduction aimed at offsetting the tax consequences for taxpayers working abroad, regardless of whether a given contract provides for an exemption-with-progression method (more favourable) or a proportional deduction method (the so-called tax credit). From 2021 onwards, individuals posted to a country where the tax credit method is used will no longer be able to benefit from a full abolition relief and instead will be subject to the limit set out above. In 2021, these regulations will become applicable to, e.g., Norway, Belgium, Canada, Denmark, and Portugal. It is worth noting that Poland, under the MLI convention, aims to make a transition to the tax credit method for all its double taxation agreements.
More freelance/liberal professions with the option to apply tax on recorded revenue without deductible costs. Applicable rate lowered to 17% - Starting from 2021, more taxpayers will be able to apply tax on recorded revenue without deductible costs. The possibility to apply this form of taxation will be extended to additional professions, such as: psychologists, physiotherapists, lawyers, attorneys-at-law, architects, construction engineers, accountants, insurance agents, insurance brokers, tax advisers, securities brokers, investment advisers.The tax rate for freelance/liberal professions shall be lowered from 20% to 17%.What is more, the revenue limit for that form of taxation shall be increased to EUR 2 million. Taxpayers will have the option to apply tax on recorded revenue without deductible costs not only to revenues derived from private rental, but business rental as well.
PIT exemption for young people - the exemption from PIT for people under the age of 26 will also include income from post-graduate and student internships.
Corporate Income Tax (CIT)
Limited and general partnerships subject to Corporate Income Tax - starting from 2021, limited partnerships will become CIT taxpayers. The partners of a limited partnership may decide to apply the new regulations from 1 May 2021,and income earned before the date on which the partnership becomes a taxpayer will be taxed under the existing rules. It is expected that limited partners will be provided with an exemption of up to 50% of the company's revenue, but not more than PLN 60,000 per year (once certain conditions have been met). General partners will benefit from the possibility of deducting CIT paid by the company in proportion to the general partner's share in the company's profit.
Starting from 2021, general partnerships with undisclosed partners will become CIT taxpayers as well.
Estonian CIT -flat-rate tax on compUnder this solution, the income of a company is not
subject to CIT as long as the profit is not paid out of the company. The following conditions have to be jointly met:
- Revenue of a spółka z ograniczoną odpowiedzialnością or akcyjna (limited liability or joint-stock company) up to PLN 100 million per year,
- the company’s shareholders are natural persons only,
- the company has no shares in other entities,
- the company has at least 3 employees, excluding the shareholders,
- the company's passive income is lower than its operating income,
- the company incurs certain investment costs (excluding passenger cars and other assets used for personal purposes),
- when taxed under the Estonian CIT, it does not prepare a report in accordance with IAS as far as issuers of securities and companies where the parent company prepares a report in accordance with IAS are concerned
Taxation under the Estonian CIT covers a period of 4 fiscal years (it is extended for another 4 years, unless the taxpayer decides to opt out of this form of taxation by submitting a relevant notice).
The rates are 15% for small taxpayers and 25% for other taxpayers with the possibility of reducing them to, respectively, 10% and 20% assuming large investments costs have been incurred.
Spółka nieruchomościowa (real property company) - a real property company whose shares are being disposed of becomes a taxpayer starting from 2021 if (i) the disposing entity is a foreign entity (ii) the shares which are being disposed of amount to at least 5% of the voting rights in the company.
A real property company is a different entity than a natural person. The assets of such a company (at least 50%) constitute real property located in Poland, and their value exceeds PLN 10 million. If the company does not possess information regarding the transaction amount, it determines the tax at 19% of the market value of the disposed shares The taxpayer is obliged to transfer the tax advance
amount to the tax remitter before the tax payment date.
Tax strategies reporting - tax capital groups and taxpayers with revenues over EUR 50 million will be required to make public on their websites information concerning their applied tax strategy. The report is to include such items as, e.g., information provided to the tax authorities on tax schemes, transactions with related entities above a certain threshold, planned and undertaken restructuring activities, information on submitted applications for general and individual tax rulings, tax settlements with tax havens. Failure to publish and report this fact to the tax authorities within a specified period of time may result in a fine of up to PLN 250 000,00.
Other changes include the following:
- revenue threshold for the application of the 9% CIT rate increased to EUR 2 million.
- exemptions from the so-called minimum tax (tax on revenue from buildings imposed at a rate of 0.035%) during the epidemic;
- limiting the possibility of recognizing losses when acquiring another entity, enterprise, or an organized part of an enterprise;
- tightening of transfer pricing regulations for transactions with entities based in countries applying harmful tax competition (so-called tax havens) or with entities having their beneficial owners located in tax havens (in this case, introduction of a documentation obligation for transactions whose value exceeds PLN 500,000 and introduction of a requirement to exercise due diligence when verifying the counterparty as well as a requirement to add a description of expected economic benefits for the transaction in the local documentation) - similar regulations are also introduced in the PIT Act
- the release of tangible assets of a company under liquidation shall be treated as its revenue (similarly as if they were being sold)
- limiting the possibility of changing the amount of the depreciation rate when the taxpayers use a CIT exemption in the period when they benefit from said exemption (in particular, this applies to entities operating in special economic zones and the Polish Investment Zone). The regulation concerns fixed assets and intangible assets entered into the relevant register after 31 December 2020.
- Improvements connected with signing statements and documenting transfer pricing adjustments as well as an extension of the documentation exemption for domestic transactions.
TP
TP statement - the statement on preparation of documentation and compliance of transactions with the arm’s length principle submitted under penalty of criminal liability by the end of 2020 (for 2019) will not require the signature of the entire board.
The TP statement can be signed by:
i. a natural person - in the case of a related entity who is a natural person,
ii. a person authorized by a foreign entrepreneur to represent him/her at the branch office - in the case of a related, foreign entity with a branch office located in the territory of the Republic of Poland,
iii. a duly authorized person in the case of other related entities
- however, the statement cannot be submitted by an attorney-in-fact (proxy).
This provision will also apply in the future when a TP statement is submitted for a tax year or a financial year, or once a state of epidemic emergency in connection with COVID-19 has been in effect in the entire territory of the Republic of Poland.
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