Top-up tax in Poland from January 2025
From 1 January 2025, the top-up tax will come into force on the basis of legislation passed by the Polish Parliament and Senate and signed by the President of Poland on 15 November 2024. These new regulations aim to implement the EU directive on global minimum tax and align Polish law with the guidelines of the Organization for Economic Co-operation and Development (OECD). A key aspect of the reform is minimum taxation, which aims to prevent multinational corporate groups from benefiting disproportionately from low-tax jurisdictions.
What is the top-up tax?
The top-up tax is a mechanism introduced to ensure a minimum level of taxation on income earned by companies within domestic and international corporate groups. It takes account of differences in effective tax rates between the countries in which these groups operate. This tax applies when the effective tax rate paid by the group in a specific country is below the minimum global rate of 15%. In such cases, the shortfall is paid in the country where the group operates.
This mechanism was developed as part of the OECD’s Pillar II initiative and implemented by EU Directive 2022/2523. It aims to reduce aggressive tax planning and ensure a fairer distribution of tax revenues between countries.
Types of top-up taxes
The legislation provides for three main categories of top-up tax:
- Qualified Domestic Top-up tax – levied on income that is undertaxed in Poland.
- Income Inclusion Rule Top-up tax – levied by the Polish head office of a corporate group (or another Polish company, as per the regulations) on income undertaxed abroad.
- Undertaxed Profit Rule – applied by a Polish entity within an international corporate group when the head office is located outside Poland and global minimum tax mechanisms are ineffective.
Legislative process
The draft law on top-up tax was submitted on April 26, 2024, and underwent several amendments during governmental and parliamentary work. These amendments were aimed at aligning the provisions with the requirements of Council Directive (EU) 2022/2523 and OECD guidelines, while taking into account the specifics of the Polish tax system.
A key aspect of the Polish implementation is the introduction of the domestic top-up tax, calculated on the basis of national accounting standards, to ensure a minimum level of taxation for Polish entities.
The new regulations, which apply to groups with consolidated revenues exceeding EUR 750 million, also include mitigating mechanisms such as “safe harbors” and deductions related to the group’s assets and activities. The rules will be effective from 1 January 2025, with an option for voluntary application from 1 January 2024. The accelerated legislative process was necessary due to an infringement procedure initiated by the European Commission for failure to implement the directive by the end of 2023. The law was signed by President Andrzej Duda on 15 November 2024.
Impact on Polish companies
Under the new regulations, top-up taxation applies to entities within domestic and international groups that have consolidated group revenues of at least EUR 750 million in at least two of the four fiscal years preceding the relevant year. An international group includes entities or branches outside Poland, while a domestic group includes only entities located in Poland.
These companies will be required to calculate their income and taxes paid in accordance with the rules set out in the Act. Based on this, they must perform an Effective Tax Rate (ETR) test. If the effective tax rate is below 15%, the company will be obligated to pay the top-up tax. In practice, this means analyzing tax structures and thoroughly reporting income and taxes according to the new regulations. Polish Deputy Finance Minister Jarosław Neneman estimates that the new rules will affect approximately 7,000 Polish companies belonging to large corporate groups.
Legal basis:
- Law of 6 November 2024 on compensatory taxation of component units of international and domestic groups (Journal of Laws of 2024, item 1685).
- Council Directive (EU) 2022/2523 of 15 December 2022 on ensuring the global minimum level of taxation of multinational enterprise groups and large national groups in the Union.
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