The year 2024 is be the first year for which CIT taxpayers reporting a loss or very low income at the end of the year have to settle the minimum tax. The ratio of income to revenue is important – if it is less than 2% the entrepreneur will pay the minimum tax. However, the new burden does not apply to small taxpayers, i.e. those with revenues, including VAT, of less than EUR 2 million.
In practice, every CIT taxpayer will therefore be obliged to analyse whether they are in the group of entities subject to the minimum tax.
Unfortunately, the regulations governing this tax are complicated, which may cause a number of problems in their interpretation. Especially as the minimum tax is to be calculated in a different manner than for the purposes of classic CIT. This is due, among other things, to the exclusion from tax deductible costs of charges under a leasing agreement or from revenue of the value of trade receivables sold to entities in the factoring industry, or to a separate method of calculating losses.
If you need assistance in understanding who and when will pay the minimum tax or with the practical application of these regulations, please do not hesitate to contact our experts.
Our offer
As part of our services we offer:
- Verification of the entity’s compliance with the minimum tax legislation
- Analysis of income and expenses for the purposes of payment of the minimum tax
- Review of exclusions and deductions
- Calculation of the tax base
- Recommendation to apply the normal or simplified method
- Calculation of minimum tax
- An indication of the rules for deducting the minimum tax paid in subsequent tax years
What is the minimum tax?
The minimum tax is to be imposed on entrepreneurs: corporate income tax (i.e. CIT) taxpayers with tax losses or very low income. However, it is important to know that the minimum tax is a new parallel form of taxation alongside the so-called ‘classic’ CIT. This means that every CIT taxpayer will have to carry out verification for being subject to the minimum tax. At the same time, simply being subject to the minimum tax does not mean being exempt from accounting for the ‘classic’ CIT.
In practice, it is possible that a CIT taxpayer will have a tax liability for ‘classic’ CIT and minimum tax at the same time in one year. However, there should then be no double taxation, as the amount of the minimum tax payable can be reduced by the ‘classic’ CIT due. Importantly, if the taxpayer pays the minimum tax, he will be able to deduct it from the ‘classical’ CIT in his returns filed for the next three tax years.
From when does the minimum tax apply?
Although the provisions concerning this levy came into force on 1 January 2022, they have been amended and their application has been suspended until 31 December 2023. If nothing changes, they will have to be applied from 1 January 2024. This means that the first year for which the minimum tax will be due will be 2024. As regards taxpayers whose tax year is different from the calendar year and started before 1 January 2024, and will end after 31 December 2023, the exemption from the minimum tax applies until the end of such tax year (Article 38ec(2) of the CIT Act).
Who is not affected by the minimum tax provisions?
The minimum tax will not be paid by personal income taxpayers (i.e. PIT), not only those taxed in the form of a lump sum or according to the scale or a flat tax and for this purpose keeping a tax book of income and expenses), also in the situation when they were obliged to keep full books of accounts. It will also not be paid by companies whose partners are exclusively PIT taxpayers (civil partnership, general partnership, which is subject to PIT due to the nature of its shareholders, partnership).
Which companies are subject to the minimum tax?
The minimum tax will generally affect two groups of entities:
- companies that are CIT taxpayers and have their registered office or management in the Republic of Poland, viz:
- companies with legal personality, including European,
- capital companies in organisation,
- partnerships:
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- limited partnerships and limited joint-stock partnerships,
- general partnerships, if the partners of the general partnerships are not exclusively natural persons, and the general partnership does not submit information on corporate income taxpayers, and on personal income taxpayers holding, directly or through entities which are not income taxpayers, rights to a share in the profits of that company referred to respectively in Article 5(1) or referred to in Article 8(1) of the Personal Income Tax Act of 26 July 1991 (Journal of Laws of 2020, item 1426, as amended2), or update this information within 14 days, counting from the day on which changes in the composition of taxpayers occurred.
- tax capital groups.
In practice, the minimum tax will thus be subject to:
- companies having their registered office or management in Poland (e.g. limited liability companies, joint-stock companies, simple joint-stock companies, limited partnerships, limited joint-stock partnerships and, under certain conditions, general partnerships whose partners are not exclusively natural persons);
- tax capital groups (PGKs).
A caveat here: the minimum tax will not, in principle, apply to entities that do not have the status of a company within the meaning of the CIT Act and operate under so-called separate laws (e.g. cooperatives, foundations, associations or SPZOZ).
Which industries may be subject to the minimum tax provisions?
In practice, the minimum tax may burden companies in industries characterised by low profitability or periodic losses, such as the sector:
- HoReCa (in English. In practice, the minimum tax may burden companies in sectors with low profitability or periodic losses, e.g. HoReCa (Hotel, Restaurant, Catering/Café),
- transport
- real estate
- industry
- processing
- wholesale and retail trade
- construction.
Will foreign entities pay the minimum tax?
The minimum tax may apply to non-residents operating in Poland through a foreign permanent establishment. The latter will be covered by the new form of taxation to the extent that income and losses are related to the activities of such a permanent establishment. In the case of foreign entrepreneurs, it will be crucial to examine the nature of the activity conducted in Poland.
However, it should be borne in mind that finding oneself in any of the described groups does not yet automatically imply the necessity to pay the minimum tax. It will be necessary to determine the tax result of such an entity.
When is the minimum tax due?
The minimum tax will only be paid by taxpayers who:
- suffered a loss from a source of income other than capital gains, or
- have earned a share of income from a source of income other than capital gains, in income other than capital gains, of no more than 2%.
In practice, each CIT taxpayer will be required to analyse whether it is in the group of entities subject to the minimum tax. If the business is conducted in the form of a company and the CIT taxpayer is not included in the exemption list, an annual review of the tax result will be necessary.
At the same time, this result will have to be calculated on principles separate from the ‘classic’ CIT. It may be the case that the company will show a loss for the purposes of accounting for ‘classic’ CIT, while, taking into account the exemptions cited above, it will not incur a loss within the meaning of the minimum tax regulations and will ultimately not pay the new tax. However, if this is not the case, it will be necessary to familiarise oneself with the rules for calculating the minimum tax.
Who can be exempt from the minimum tax?
Exempt from minimum tax:
- CIT taxpayers who are just starting their business. The draft to the law clarifies that these can be start-ups, new companies established by Polish companies, as well as entities that enter the Polish market. Such an exemption will operate for the first three years of business. In practice, the minimum tax will apply to new CIT taxpayers in the 4th year of operation at the earliest. However, entities established as a result of restructuring operations (e.g. transformation operations resulting in the restructuring of the structure, division or contribution in kind) will not be treated as start-up taxpayers.
- CIT taxpayers, which achieved in a given year revenues lower by at least 30% in relation to the previous year. This means that simply earning lower income or incurring a loss will not always result in a minimum tax. If, as a result of a year-on-year comparison of income – there is a decrease of at least 30%, the minimum tax will generally not occur.
- companies with relatively simple ownership structures, i.e. those whose shareholders or partners are exclusively natural persons and at the same time do not hold, directly or indirectly, shares in the capital of another company or all rights and obligations in a company that is not a legal person in an amount exceeding 5 per cent. These companies should not, however, hold other property rights connected with the right to receive a benefit as a founder (founder) or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature.
- Taxpayers forming part of a group of companies. The exemption may apply to a group of at least two companies in which one company holds directly or indirectly at least 75% of the share capital, share capital or equity interest of the other companies in the group. For the above exemption to apply, the following conditions must generally be met: the companies’ tax year must cover the same period and, calculated for the tax year, the share of the companies’ total income in their total income must be greater than 2%.
- financial institutions whose principal activity is the provision of financial services consisting in the acquisition, against payment, from a creditor of receivables arising from the conclusion of a contract for the sale of goods or the provision of services between that creditor and the debtor. These will include investment firms, financial holding companies, mixed financial holding companies, investment holding companies, payment institutions or asset management companies. Domestic banks, credit institutions and selected domestic and foreign insurance companies, among others, will also benefit from this preference;
- taxpayers in which the majority of their income other than from capital gains in the tax year was earned in connection with: the operation in international transport of sea-going vessels or aircraft;
- in addition, the following entities will not pay the minimum tax: small CIT taxpayers (whose annual gross sales revenues do not exceed EUR 2 million); those placed in bankruptcy, liquidation or under restructuring proceedings; taxpayers that are party to a co-partnership agreement; municipal companies, companies providing mainly health care services, taxpayers whose profitability in one of the last three tax years was above 2%.
Conclusion:
- minimum tax exemptions can cover many companies,
- however, some of the wording used by the legislator, particularly concerning taxpayers exempt from the minimum tax, is not clear and/or precise,
- currently there is no practice of applying the new regulations or an established line of interpretation or courts,
- hence, currently many taxpayers apply to the National Fiscal Information with requests for individual interpretations.
If you have similar doubts as to the interpretation of the minimum tax regulations, you are welcome to contact our Office. Our experts may also prepare a request to the NITC and/or represent you in the course of proceedings to issue such an interpretation.
How to calculate the minimum tax?
The minimum income tax rate is to be 10% of the tax base, which is the sum of several components. In a nutshell, the tax base is to be made up of the sum of 1.5% of income from so-called operating activities (i.e. the value of income from a source of revenue other than capital gains earned by the taxpayer in the tax year) and the ‘excess’ costs of debt financing and intangible services incurred for the benefit of related parties.
This refers to debt financing costs incurred for the benefit of related parties, exceeding the value of 30% of tax EBITDA and the amount of costs of services or intangible rights incurred for the benefit of these parties exceeding the value of PLN 3 million plus 5% of tax EBITDA.
Numerous exclusions and deductions are provided for the calculation of the minimum tax.
Consequently, the minimum tax will be subject to calculation in a different manner than for the purposes of classic CIT. This will result, inter alia, from the exclusion from tax deductible costs of charges under fixed asset leasing agreements or from revenue of the value of trade receivables sold to entities in the factoring industry, etc., or from a separate method of loss calculation. Expenditure on the acquisition of fixed assets, as well as revenue and deductible costs directly or indirectly related to such revenue, will not be included in the calculation of loss and revenue share.
A taxpayer may also opt for a simplified method of determining the tax base representing an amount equivalent to 3% of the value of the income earned in the tax year from a source of income other than capital gains. However, the taxpayer must inform the competent tax authority of the choice of such simplification in the tax return filed for the tax year of making this choice.
Deadline for payment of the minimum tax?
The design of the minimum tax does not provide for the payment of advances during the tax year. Since the minimum tax is calculated once a year, it is assumed that it must be paid by the deadline for filing the annual return for the year in question.
If there are no changes to the tax legislation, companies will pay the minimum tax for the first time in 2025, when they have tax losses or do not exceed the 2% break-even point (revenue share).
There is currently no indication that the minimum tax obligations will be postponed once again. However, this does not change the fact that the rules governing this tax are complicated and their interpretation can and will pose a number of problems. If you need help in understanding who will pay the minimum tax and when, or with the practical application of these regulations, please contact our experts.