On 15th November the President signed an amendment to tax laws that implement solutions of the so-called “Polish Deal”. New legislation will have a significant impact on business activity taxation.
In our view key changes to be introduced by the new law, which most take effect on 1 January 2022, will focus on 4 main areas:
1) new minimum tax with rate 10% for firms which ratio of operational income to capital gains revenue is lower than 1% or incurring tax losses. It is worth mentioning that new minimum tax will be applicable to all businesses irrespective of size or domicile of capital. Exclusions from minimum tax will be inter alia granted for firms exclusively owned by physical persons. At the same time in many cases tax base of minimum tax will be reduced, for example for firms operation in Polish Investment Zone / Special Economic Zones or benefitting from various tax reliefs.
2) tax and social security burdens on the remuneration of the employees and board members as well as revenues earned from the individual business activity, in particular stemming from the withdrawal of the possibility of the deduction of the health insurance contribution from tax and a new method of determining the amount of health insurance contributions for persons running a business activity. The health insurance contribution in the case of sole entrepreneurs reconciling their business activity income with a 19% flat tax rate shall amount to 4.9% of the income, and for those subject to the lump sum tax shall be fixed depending on the revenues level. Additionally, apart from the employees, also management board members are to be covered by the obligatory 9% health insurance contributions.
3) new tax reliefs and modification of existing ones, in particular:
- increase of R&D additional deduction on R&D employment costs to 200%,
- possibility of deduction R&D relief from IP Box tax base,
- new tax relief for innovative staff allowing cashless refund of unused R&D tax relief,
- new tax relief for prototypes, allowing for additional deduction of pilot series production up to 30% of incurred costs,
- new robotization tax relief granting additional deduction of 50% of costs incurred on purchase of industrial robot,
- new tax relief for expansion with additional deduction of up to PLN 1 000 000 incurred on increasing revenues of sale of goods,
- and new tax reliefs on IPO, CSR or consolidation.
4) additional transfer pricing restrictions - relating to both related party transactions and uncontrolled transactions conducted with unrelated entities (which may in some cases be regarded as transactions with entities located in tax havens). Tax deductibility of these transactions could be limited as they may be treated as a hidden dividend. Alternatively, they could also increase the tax basis for the minimum tax. Taking the above into consideration, proper justification of related party transactions or concluding an APA is getting even more important than before.
We encourage you to discuss with us impact of the above mentioned changes as well as other changes on your business activity in Poland.