Minimum income tax CIT – current legal status
Let’s be clear. Currently – as of February 2023. – companies in Poland do not have to pay the minimum tax. This may come as a surprise, given the government’s announcement that the levy will go into effect in early 2023. Key to understanding the current state of the law is the introduction of Polish Governance 3.0, actually the law of October 7, 2022. On Amendments to the Law on Corporate Income Tax and Certain Other Laws (Journal of Laws 2022, item 2180).
The third version of the Polish Deal pushed back the implementation of the CIT minimum tax until January 2024. This means companies have all of 2023 to prepare for the new tax, which they won’t pay until 2025, when they settle their income for all of 2024. However, this is not the end of the changes – the latest amendment to the law made many amendments, including some key ones.
What changes in the context of the CIT minimum tax were introduced by the Polish Order 3.0?
Although we are essentially talking about the same bill, which calls for corporate taxation with a minimum CIT regardless of income level, the changes have touched on a number of important elements of the bill.
Income criterion
Although, as we mentioned, the level of revenue in the context of the minimum CIT is irrelevant, qualification for the tax will be determined by the profitability of the entity, i.e. the share of income in the company’s revenue. Prior to the law’s amendment, the bill stipulated that companies with a profitability of 1% would have to pay a minimum tax. Under the latest changes, reaching the 2% annual profitability threshold will require paying a minimum CIT. This means that fewer taxpayers will pay the minimum tax for 2024.
Let’s recap: the minimum CIT from 2024 will apply to companies, PGKs (tax capital groups) and foreign-owned workplaces with an annual profitability ratio of at least 2%.
Exclusions and exemptions
The CIT Law has gained a new wording of Art. 24ca. According to the updated wording, the minimum CIT will not cover, among other things. small CIT taxpayers (entities whose annual gross revenues have not pierced the limit of PLN 2,000,000) and companies operating in the municipal economy. However, this is not the end of the exclusions. The minimum CIT will also not apply to taxpayers who meet at least one of the following criteria:
- their profitability exceeded 2% in at least one fiscal year out of the last three,
- are placed in bankruptcy, liquidation or restructuring proceedings,
- most of their revenues come from transactions in which prices or the way they are set are derived from laws, or other normative acts,
- They generated most of their revenue by providing health care services,
- Are a party to the cooperation agreement,
- operate in the factoring industry,
- Are mining companies that benefit from public assistance.
Possibility of using a simplified tax base
Another change that the Polish Deal 3.0 will introduce in the CIT Law is to give minimum CIT taxpayers a choice on how to calculate the tax base. These taxpayers will be able to opt for the basic or simplified method.
The basic method was already present in previous versions of the amended CIT Law, but it too has not been spared changes. Here they are:
- The ratio of the value of operating income, excess passive costs, including debt financing costs, and excess intangible service costs decreased from 4% to 1.5%,
- the tax base will not include deferred tax – the presence of this element has been repeatedly viewed as raising questions of interpretation.
Thus, in the basic method of calculating the tax base, the sum of the operating income (1.5%) and the so-called “tax base” should be taken into account. Excessive costs of debt financing and intangible services.
The simplified method is a novelty in the context of calculating the CIT minimum tax. In this case, the taxpayer takes into account only one value – 3% of income from sources of income other than capital gains.
The choice of method for calculating the tax base must be reported when filing the tax return.
Changes in the calculation of the profitability ratio
Another set of amendments relates to how the profitability index is calculated. From 2024, there will be no need to include it:
- tax-deductible expenses representing payments under a fixed asset lease agreement,
- 20% of deductible expenses related to salary from work, benefits paid by the workplace,
- contributions to the Labor Fund, Solidarity Fund or Guaranteed Employee Benefits Fund in the part financed by the payer,
- contributions to Employee Capital Plans,
- An increase in the BUI resulting from the purchase of utilities – electricity, heat or gas,
- revenues representing the value of trade receivables sold to factoring operators,
- excise
CIT minimum income tax – summary
The CIT minimum tax is a tool designed to tighten the tax system in Poland and, above all, to curb the ability of multinational corporations to take money earned in Poland abroad to avoid income tax. So if a company wants to operate in 2024 to show no income or even a loss from a source of income other than capital gains, it will be subject to minimum corporate income tax.
So much theory – how the introduction and, above all, the enforcement of the new regulations will look in practice, we will probably find out in 2025.
