Minimum income tax

The minimum income tax is a new levy, which was announced to come into effect with the Polish Deal. It is to be paid by those entities that have low income and high expenses.
Author:
Ewa Janas
Junior TAX Consultant
Hanna Polańska
Tax Compliance Manager

According to the assumption, the income tax will be paid by companies, as well as tax capital groups, which incur a loss from a source of income other than capital gains, or have a share of income from a source of income other than capital gains of no less than 1%.

Contrary to the Ministry of Finance's announcement, the minimum tax will be paid by many companies, especially those still affected by the Covid-19 pandemic.

The latest draft of the amendment to the Law on Corporate Income Tax (the CIT Law) includes a modification and postponement of the entry into force of the minimum income tax provisions.

Postponement of the entry into force of the minimum income tax provisions

Due to the current geopolitical situation and related economic uncertainties, it is now proposed to suspend the application (exemption) of the provisions of Article 24ca of the CIT Law for the first year - from January 1, 2022 to December 31, 2022.

The indicated procedure eis supposed to protect Polish companies from the consequences of the entry into force of the minimum income tax in circumstances when political and economic turmoil has an impact on the global economy and thus on the operating entities.

Read more about the alternative minimum corporate income tax here.

Planned changes

In addition to postponing the application of the provisions on the minimum income tax, the project changes its structure consisting in increasing the profitability ratio from 1% to 2% and changing the methodology of its calculation by excluding:

  • from tax deductible costs:
    • lease agreement fees,
    • increase in the value of wages and salaries and social security contributions on an annual basis,
    • increase in energy value at annual intervals,
  • from revenues - the value of trade receivables sold to entities from the factoring industry, and
  • the equivalent of excise duty.

The changes will enable to choose the method of determining the tax base.

As of 2023, the calculation formula for determining the tax base will be changed. The tax base will be the sum of:

  • an amount equivalent to 2% of the value of income (currently 4%) from a source of income other than capital gains earned by the taxpayer in the tax year,
  • debt financing costs incurred for the benefit of related parties, if they exceed the amount of the limit determined on the basis of the formula. The limit under the draft will be 15% of EBITDA (currently 30%),
  • deferred income tax resulting in an increase in gross profit or a decrease in net loss,
  • the portion of the costs of acquiring certain services or intangible rights incurred for the benefit of related parties or entities from a country applying harmful tax competition in excess of 5% of tax EBITDA (currently, the excess over PLN 3 MLN).

The simplified method

A taxpayer will be able to choose a simplified method of determining the tax base representing an amount equivalent to 4% of the value of income from a source of income other than capital gains earned in the tax year.

The taxpayer will inform about the choice of a method only in the submitted tax return for a given tax year.

Exclusion catalog extension

The draft provides the extension of the catalog of exemptions of taxpayers obliged to pay the minimum income tax by adding in art. 24ca the paragraph. 14 of the CIT Act:

  • CIT taxpayers whose annual revenues do not exceed EUR 2 mln,
  • companies conducting municipal management,
  • taxpayers, most of whose revenues were generated in connection with the provision of health care services,
  • taxpayers whose profitability in one of the last three tax years was above a 2% ratio, and
  • taxpayers placed in bankruptcy or insolvency.
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