The Polish government is currently working on extensive amendments to the tax law. The proposals affect a broad range of business-related taxes, ranging from anti-abuse provisions (GAAR), major changes in the withholding tax (WHT) system, the introduction of an intellectual property (IP) tax regime and exit taxation. Furthermore, new rules will apply to tax deductibility of company cars.
The proposed amendments have been subject to revisions over recent weeks but, last week, they were accepted by the government and passed on to the parliament. Please find below a summary of the key changes which await final legislative approval before being passed into law.
Reduced 9% corporate income tax rate
The law introduces a reduced 9% corporate income tax (CIT) rate on income other than income from passive sources (capital-related income). This applies to small taxpayers whose turnover in a fiscal year is below Euro 1,2 million.
Company cars
As of 2019 if a company car is used not only for business purposes but also privately the company will be allowed to deduct only a part of vehicle-related costs. In the current draft the deductibility limit is set at 75% of costs. Also, the deductibility limit of the amount of depreciation write-offs and leasing installments on electric cars will be set at PLN 225 000 annually.
Exit Tax
The new changes implement the EU Anti-Tax Avoidance Directive (ATAD) in the area of exit taxation. A new 19% tax applies to unrealized profits that are embedded in a taxpayer’s property which is transferred outside of Poland where the transferred items remain the property of the same taxpayer or the taxpayer changes fiscal residence.
In the current draft, the exit tax threshold for natural persons is calculated as the difference between the fair market and tax book value of a property exceeding a PLN 4 million threshold. This means that only transfers of assets of a value exceeding PLN 4 million threshold will be subject to the exit tax.
Also, the current draft introduces the possibility to apply for a refund of previously paid exit tax if a taxpayer transfers his property back to Poland within 5 years from its relocation.
GAAR amendments
Several changes to the General Anti-Avoidance Rules (GAAR) are proposed, including an additional tax liability imposed in the event of an assessment of tax as a result of identifying an avoidance of tax regulations. The previous draft provided a main rate of 40% and 10% rate applicable in exceptional cases. The current version reverses the rates which means that 10% is now the base rate and the 40% rate is applicable in exceptional cases.
IP Box
The proposals introduce a so-called IP Box into the Polish tax system. The IP Box is aimed at encouraging innovative research and development activities by taxing profits from intellectual property rights at a preferential 5% rate. The incentive is based on OECD recommendations set out in BEPS Action 5. Agreement on Modified Nexus Approach for IP Regimes.
The initial draft provided that the preferential 5% rate will apply to “qualifying income” from IP created, developed or improved by a taxpayer as part of his R&D activity. The new proposals broaden the scope of income derived from IP licensing and also clarify that the scope of qualifying rights includes IT software.
Please contact us if you would like to learn more on the above regulations or discuss the potential impact on your business.
Matthew O’Shaughnessy
Head of Tax
E: moshaughnessy@asbgroup.eu
Rafał Wienconek
Senior Tax Consultant - Tax Adviser
E: rwienconek@asbgroup.eu