Polish Deal – Changes applicable to Polish Personal Income Tax (PIT) and Corporate Income Tax (CIT)

On November 15, 2021 the President signed into law the Act of 29 October 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts (Polish Journal of Laws 2021, item 2105), which is part of the program known as the “Polish Deal” and introduces a number of changes in Polish tax regulations, most of which are to be effective from January 1, 2022 onwards. 

We present the most important changes applicable to Polish Personal Income Tax (PIT) and Corporate Income Tax (CIT)introduced by this Act: 

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Change in withholding tax regulations

The restrictions on the inability to withhold tax on the basis of the relevant double tax treaty, as well as the inability to take into account exemptions or rates resulting from special regulations or double tax treaties, which apply to payments of certain receivables subject to withholding tax exceeding PLN 2,000,000 to a single entity, have been significantly minimized. After the changes will come into force, these limitations will apply only if the payment is made to a related entity which is not a Polish tax resident.

It also extended the subject matter of the opinion on the application of the exemption to references provided for in double taxation treaties.

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Changes in the scope of depreciation of tangible and intangible assets

The following have been excluded from depreciation:

• co-operative ownership right to residential premises;
• right to a single-family house in a housing cooperative;
• residential buildings with cranes in them;
• residential premises constituting separate real estate.

With respect to PIT, a change was also introduced in the manner of determining the initial value of fixed assets which were used by the taxpayer before entering them in the records and were not depreciated beforehand. Their initial value will be their purchase price – not higher than the market value.

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Limitation in terms of conditions for income tax exemption from realization of investments in Polish Investment Zone or in Special Economic Zones.

The Act clearly states that only the income from business activity earned from the realization of a new investment and obtained in the area specified in the decision on support is subject to income tax exemption.

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Changes in the scope of transfer pricing

1. The definition of related parties has been modified – It has been clearly indicated that related parties are:
• a limited partnership and its partner,
• a limited joint-stock partnership and its partner
• general partnership and its partner.
2. Transfer pricing adjustments have also been allowed to be made in minus situations where the taxpayer has received accounting evidence from a related party that confirms that the related party made a transfer pricing adjustment in a specified amount.
3. The loan agreement has been specified to comply with the terms and conditions of the financial safe harbour in terms of interest rates, including in the event that the loan agreement is amended.
4. It has become mandatory to prepare local tax records in electronic form.
5. The deadline for preparing local tax documentation has been extended to 10 months after the end of the tax year.
6. The deadline for the taxpayer to submit local transfer pricing documentation at the request of the tax authority has been extended to 14 days.
7. The method of determining the value of a controlled transaction in the case of a deposit agreement and transactions involving the formation of an unincorporated partnership has been regulated.
8. Exemptions from the obligation to prepare local transfer pricing documentation have been introduced (if additional conditions specified in the Act are met):
• transactions between foreign establishments located in Poland, whose parent entities are related entities, as well as between a foreign establishment located in Poland of a related entity that is a non-resident and its related entity that has tax residency in Poland;
• controlled transactions covered by tax treaty and investment treaty;
• controlled transactions covered by safe harbour mechanism;
• transactions concerning settlements within the scope of so called pure reinvoicing.
9. Exemption from the obligation to present comparative analysis or conformity analysis (banchmarking) in tax documentation for controlled transactions concluded by related entities which are micro or small enterprises and for transactions other than those concluded with so-called tax havens has been introduced.
10. The necessity to submit the statement on preparation of transfer pricing documentation as a separate document has been eliminated and it has been moved, in the amended content, to the transfer pricing information.
11. The deadline for filing transfer pricing reports (TPRs) has been extended to the end of the 11th month after the end of the tax year.
12. The signing of transfer pricing information has been amended – Transfer pricing information will be able to be signed by:
• a natural person – in case of an affiliated entity being a natural person,
• a person authorised by the foreign entrepreneur to represent him in the branch – in the case of an affiliated entity being a foreign entrepreneur with a branch operating in the territory of the Republic of Poland,
• a manager of the entity, and if the entity is managed by a multi-person authority – a designated person from this authority,
• a plenipotentiary being an advocate, legal adviser, tax adviser or certified auditor.

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New tax reliefs for entrepreneurs

Prototype tax relief – rewarding taxpayers’ activities in which they develop and put into production a new product to then bring it to market.

Expansion tax relief – addressed to entrepreneurs who have increased their sales revenue in a non-incidental manner or have gained revenue by introducing new products or by starting sales in a new market.

CSR (Corporate Social Responsibility) tax relief – for taxpayers who support sports, culture and education.

Robotization tax relief – for entrepreneurs purchasing new machinery and equipment as defined in the Act. The relief applies only between the beginning of the tax year beginning in 2022 and the end of the tax year beginning in 2026.

Tax relief for the costs of acquiring and using a payment terminal – can be claimed in the tax year in which the taxpayer started using a payment terminal and in the following year.

Tax relief related to the employment of innovative employees – complements the relief for research and development activity, which will consist in the taxpayer retaining (i.e. not paying to the tax office) a part of the advance tax payments, or lump-sum tax, collected from the salaries of employees, contractors and authors directly involved in research and development activity – calculated taking into account the tax rate applicable to the entrepreneur.

Increase of the bonus rates for qualified costs of research and development activity – and introduction of the possibility to apply simultaneously, with respect to the same income, the R&D tax relief and IP Box. Thus, taxpayers will be able to apply a 5% tax rate to income determined taking into account the R&D relief.

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