Corporate Tax 2023 Comparisons

Last Updated March 14, 2023

Law and Practice

Authors



Hogan Lovells (Warszawa) LLP (Spółka partnerska) Oddział w Polsce is a truly global legal practice offering complex assistance across more than 50 offices located on six continents. Considered one of the leading law firms in the country, the Warsaw office of Hogan Lovells has more than 20 years' experience in advising clients, offering a uniquely broad range of legal services and tax expertise. The Warsaw tax team is regarded as one of the foremost teams in Poland, and provides highly specialised, comprehensive, full-cycle tax planning, transactional and compliance support. It is uniquely experienced across a range of tax-related areas, including corporate, M&A, securitisation, international and local tax structuring and cross-border transactions, legislative tax policy, finance and insurance.

Businesses in Poland generally adopt a corporate form, with the most common corporate forms being as follows.

  • Spółka z ograniczoną odpowiedzialnością (LLC): this is the most popular form of business in Poland, especially for small and medium-sized enterprises. The minimum share capital required to establish an LLC in Poland is PLN5,000 (approximately USD1,300).
  • Spółka akcyjna (SA): this is a joint stock company that is a type of corporation. The minimum share capital required to establish an SA in Poland is PLN100,000 (approximately USD26,000).
  • Prosta Spółka Akcyjna: this is a simple joint stock company, which was introduced as a simpler and more flexible alternative to traditional joint stock companies. The key features of a simple joint stock company in Poland include a simplified process of incorporation, more flexible management and easier transfer of shares.
  • Spółka komandytowa (SK): this is a limited partnership where there are two types of partners – general partners and limited partners. The general partners manage the company and are fully liable for its debts, whereas the limited partners are only liable for the company's debts up to the amount of their capital contribution.
  • Spółka komandytowo-akcyjna (SKA): this is a limited partnership with shares, which combines the features of an SA and an SK.

All of these corporate forms are taxed as separate legal entities, which means that they must file their own tax returns and pay corporate income tax (CIT) on their profits.

In certain situations, a general partnership can also be subject to CIT if its partner is a legal person.

The following entities are considered to be tax transparent for CIT purposes:

  • Spółka jawna (general partnership); and
  • Spółka partnerska (partnership).

In the case of a general partnership, the partners are liable for the company's obligations without limitation, jointly and severally with the partnership. The situation is similar in the case of a partnership, with the exception that a partner in such a company is not liable for the company's obligations incurred in connection with the performance of the other partners.

The establishment of partnerships is reserved only for liberal professionals, such as advocates, architects, auditors, insurance brokers, tax advisers, stockbrokers, investment advisers, doctors, notary publics or sworn translators.

Neither form of partnership is subject to CIT or personal income tax (PIT). The revenue and costs of the partnership (general partnership) are allocated directly to the partners. However, the partnerships must file financial statements.

Under Polish regulations, companies that are CIT taxpayers have their tax residency in Poland if they have their registered office or place of management in Poland. Polish regulations recognise the place of management as the place where the taxpayer's current affairs are conducted in an organised and continuous manner on the basis of the following in particular:

  • an agreement, decision, court ruling or other document regulating the establishment or functioning of that taxpayer;
  • the powers of attorney granted; or
  • the existence of relations of a capital, family or factual nature.

Standard double tax treaty (DTT) regulations and mutual agreement procedures (MAPs) apply.

The tax residency of tax-transparent partnerships cannot be established because these partnerships are not income taxpayers. However, since partnerships are considered as permanent establishments of their foreign partners, the income they earn through such a partnership can be taxed in Poland.

CIT

The basic rate of CIT on business activity conducted in Poland is 19%. This tax is paid by companies, limited partnerships and limited joint stock partnerships, as well as other legal entities such as foundations, co-operatives and state enterprises. Foreign corporations are also obliged to pay this tax if they earn income in Poland from business activity conducted through a permanent establishment, or from other sources listed in the CIT Act.

Taxpayers who are starting up or whose revenue does not exceed EUR2 million are allowed to pay CIT at the rate of 9%.

Certain companies can choose a flat rate income tax (the so-called Estonian CIT), in which case they do not pay income tax until the profit has been distributed to the shareholders. The tax rate is set at 10% for small taxpayers, and 20% for others.

Under CIT, taxpayers might be required to pay additional tax on shifted profits (see 9.14 Taxation of Offshore IP), tax on income from buildings, or a minimum income tax.

Income generated through the use of intellectual property (IP) rights can be taxed at 5%, subject to certain additional conditions and formal requirements (the “Innovation Box” or “IP Box” tax regime).

PIT

Individuals are taxed at the 12% tax rate if their annual income does not exceed PLN120,000; income above this amount is taxed at the 32% tax rate. Individuals whose annual income exceeds PLN1 million pay an extra solidarity surcharge of 4% on the excess over PLN1 million.

Persons earning income from business activity can choose to be taxed at the flat rate of 19%.

An additional option is to apply a lump-sum tax on revenue when the tax rate depends on the nature of the business activity and varies between 17% and 2%.

Tax on income from tax-transparent partnerships is paid by the partners, who pay tax according to their status. Legal persons pay tax in accordance with the rules of the CIT Act, and natural persons pay tax in compliance with the regulations of the PIT Act. These rules apply not only to tax rates, but also to the determination of income, expenses and tax relief.

Taxable income is determined as the difference between the revenue received by a taxpayer and the expenses incurred. Expenditure reduces income if it is related to income received, or if it serves to secure or maintain a source of income. In certain situations, revenue is the taxable base (without deducting tax costs). This includes dividends received, tax on building income, tax on transferred income or minimum income tax.

Taxpayers are required to keep accounting records and records of their tangible and intangible assets. Not all expenses and income shown in accounting records can be recognised as tax costs or income. The CIT Act contains a long list of expenses that do not constitute tax costs.

Taxpayers are required to establish a separate tax base for income derived from capital gains and from other sources.

Taxable income is calculated on an accrual basis. An exception is interest paid and received, for which cost and income are reported on a cash basis.

Taxpayers can benefit from the following new technology reliefs:

  • research and development (R&D) relief; and
  • IP Box relief.

R&D Relief

The R&D relief is based on the fact that a taxpayer can deduct any deductible costs from their tax base incurred for R&D activities, known as “qualified costs”.

An expense incurred for R&D activities can be included in the tax return up to three times (for certain expenses). This occurs when the expense is recognised as a deductible expense and the same expense is deducted from the tax base in the annual return.

IP Box Relief

This is a tax preference that allows a lower tax rate of 5% to be applied to income obtained by a taxpayer from qualified IP rights (patents, rights from the registration of an industrial design, rights from the registration of a medicinal product, or an author's rights to a computer program) if said rights are subject to legal protection and their subject matter has been created, developed or improved by the taxpayer as part of its R&D activity.

Taxpayers can also take advantage of:

  • the prototype relief, which allows for a deduction of 30% of the expenses of prototypes, capped at 10% of income;
  • the relief for the employment of innovative employees, which enables loss-making companies to benefit from the R&D relief during the tax year; and
  • the relief for robotisation (extra deduction of costs of purchase of industrial robots).

New Investment Relief

Income taxpayers can obtain tax relief for new investments. Support is granted to companies in the industrial and hi-tech services sectors.

Support is granted in the form of a CIT or PIT income tax exemption in connection with the realisation of a new investment. This tax relief constitutes regional investment aid.

The income tax exemption limit is calculated as a percentage of:

  • the costs of the new investment (investment outlays incurred); or
  • two-year costs of employment of new employees.

The percentage of public aid (ie, aid intensity) depends on the size of the entrepreneur and the chosen location, and ranges from 10% to 70% of the investment costs incurred.

Expansion Relief

This relief is available to companies selling the products they manufacture. It allows an additional deduction from income of the costs of participation in fairs, marketing activities and the preparation of documentation, among other things.

Thanks to this relief, it is possible to deduct 200% of the costs incurred to increase revenue from the sale of products, but for no more than PLN1 million.

The benefit of the relief is subject to further conditions.

A taxpayer's income can be reduced by the amount of losses over the next consecutive five tax years, with the exception that the amount of the deduction cannot, in any of these years, exceed 50% of the loss incurred in a given year. Alternatively, taxpayers are allowed to deduct PLN5 million of losses in a single year, with the remaining loss amount to be deducted in subsequent years, but the amount of the deduction cannot exceed 50% of the remaining amount of the loss.

Taxpayers are obliged to exclude the costs of debt financing from deductible costs in the part in which the surplus of the costs of the debt financing exceeds PLN3 million or an amount constituting 30% of EBITDA, whichever is higher.

Debt financing costs include interest (including that capitalised or included in the initial value of a fixed or intangible asset), fees, commissions, bonuses, the interest part of a lease instalment, penalties or fees for the delay in the payment of liabilities and the costs of securing liabilities, including the costs of derivative financial instruments, regardless of for whom they were incurred.

Excess debt financing costs should be understood as the amount by which the debt financing costs incurred by a taxpayer which are tax deductible in a tax year exceed the taxable income of an interest nature obtained by the taxpayer in that tax year.

It is possible to set up a Tax Capital Group (PGK), which can be formed from at least two commercial law companies (limited liability company, joint stock company or simple joint stock company) that are in a capital relationship. The idea behind this model is that a group of companies can jointly account for income and losses, with the parent company being responsible for the CIT settlements.

In order to establish a PGK, it is necessary to fulfil the following conditions, among others:

  • the PGK's registered office must be in Poland;
  • the average share capital attributable to each of the companies must not be less than PLN250,000;
  • one of the companies in the group – the parent company – must directly hold at least 75% of the share capital of the other companies (subsidiaries);
  • the agreement forming the tax capital group must be concluded for a period of at least three tax years;
  • the tax capital group must have a revenue share of at least 2% for each tax year; and
  • the PGK cannot be extended to include other companies, nor reduced by any of the companies forming the group, with the exception of company reorganisations as a result of mergers or spin-offs.

Standard capital gains tax is 19% and applies also to the sale of shares. Income can be reduced by expenses incurred in acquiring shares. The regulations stipulate the possibility to exempt the sale of shares if it is effected by a holding company, an alternative investment company, an investment funds or a family foundation.

Holding Company

A holding company can operate as a limited liability company, a simple joint stock company or a joint stock company. The holding company must have its registered office in Poland. Income from the sale of shares by a holding company is exempt from tax if certain conditions are met, including the level and period of control over the subsidiary, its asset structure, business substance, etc.

Alternative Investment Company

An alternative investment company (ASI) is one form of alternative investment fund, besides a specialised open-ended investment fund or a closed-ended investment fund.

The sale of shares by an ASI is exempt from tax if:

  • prior to the date of disposal, the ASI directly holds no less than 5% of the shares in the capital of the company whose shares are disposed of;
  • at least 5% of the shares have been held by the ASI prior to the date of disposal for an uninterrupted period of two years; or
  • the real estate located in Poland does not constitute more than 50% of the value of the assets of the company being divested.

Investment Funds

Income from the sale of shares by open-ended investment funds and specialised open-ended investment funds, as well as closed-ended funds established under the Investment Funds Act, is exempt from CIT. The exemption also applies to foreign funds, but subject to a range of conditions.

Family Foundation

A family foundation is an entity that has legal personality and is set up in order to accumulate assets, manage these assets, and distribute them to beneficiaries.

A family foundation is exempt from CIT, so any income from the sale of shares is not subject to CIT.

The Family Foundation Act of 26 January 2023 will enter into force on 22 May 2023.

The main transaction taxes are VAT, excise duty and the tax on civil law transactions. VAT and excise regulations are based on EU legislation.

The tax on civil legal transactions is a capital tax that is levied on certain civil legal transactions, their modifications and certain other activities. The subjects of this tax include:

  • sales contracts;
  • loan agreements;
  • donations;
  • mortgage agreements; and
  • articles of association.

As a rule, the basis for calculating the tax is the value of the transaction. Depending on the type of transaction, the rate of tax ranges from 0.5% to 2%.

Transactions are exempt from tax insofar as they are subject to VAT (this does not apply to articles of association).

Business entities can additionally be subject to:

  • property tax, which is levied on owners and certain holders of land, building or structures;
  • tax on certain financial institutions, which applies to domestic banks, branches of foreign banks, insurance companies and credit institutions, and is imposed on assets with the tax-free amount of PLN4 billion for banks and PLN2 billion for insurance companies; and
  • tax on retail sales, which is levied on vendors selling goods (movables) to consumers.

Other less essential taxes paid in Poland include:

  • sugary drink tax;
  • tax on alcoholic beverages with a volume up to 300 ml;
  • tonnage tax;
  • gambling tax;
  • tax on mines; and
  • stamp duty.

Polish law does not distinguish closely held businesses, and does not provide for their specific tax treatment compared to other types of businesses. In practice, most closely held local businesses operate in the form of sole entrepreneurs, LLCs or partnerships.

Using the form of an LLC or a limited partnership allows shareholders or partners to mitigate their liability for any business obligations or debts. However, the disadvantage of using these legal vehicles is that, in both cases, tax is paid at the level of an LLC or a limited partnership, as well as at the level of the shareholder/partner. From this perspective, conducting business as a sole entrepreneur or through a tax-transparent simple partnership is more efficient, since any income is taxed at the level of the individual only. However, these forms of conducting business do not allow for the limitation of personal liability for an individual conducting business activity.

The Polish PIT regulations stipulate various alternative methods of taxation of individual income derived from business activity (please see 1.4 Tax Rates).

Although using corporations for conducting business is available to almost all professionals (with certain exceptions, such as attorneys-at-law and advocates), corporate taxation is generally less advantageous. The CIT rates are 9% (in the case of small corporations) and 19%, but an additional 19% is payable on distributing dividends to individuals. Therefore, in most cases, corporate taxation is less favourable for professionals.

There are no rules in Poland that could prevent closely held corporations from accumulating earnings for investment purposes. There are some tax advantages that can encourage corporations not to distribute dividends to shareholders, but instead to accumulate earnings for future investments. Although the standard CIT applies to all income derived by a corporation, PIT at the rate of 19% is only payable by a shareholder upon receiving dividends. So long as the earnings stay within the company, no PIT is payable by the shareholder. There is also a specific CIT regime (lump-sum CIT) that is payable by the company only on distributions made to shareholders.

There are no special taxation rules for closely held corporations. Dividends received by individuals from closely held corporations are subject to 19% PIT, as are gains on the sale of shares.

Polish law does not stipulate any special rules for publicly traded corporations. Dividends paid by these corporations to individuals are subject to 19% PIT, as are gains on the sale of shares in these corporations.

The Polish domestic withholding tax (WHT) rates applicable in the absence of income tax treaties are as follows:

  • dividends – 19% WHT on payments to both legal persons and individuals;
  • royalties – 20% WHT on payments to both legal persons and individuals; and
  • interest – 20% WHT on payments to legal persons, and 19% WHT on payments to individuals.

Dividends paid by Polish companies to companies seated in EU or EEA countries are exempt from WHT in Poland if the dividend recipient is a company holding at least 10% of the shares in a Polish company for at least two years. Similarly, any interest or royalties paid to companies holding at least 25% of the shares in a Polish company or to a sister company with the same shareholder holding 25% shares for at least two years are also exempt from WHT in Poland. In order to apply the above exemption, the dividends/royalties/interest recipient must meet certain statutory conditions.

However, the exemption can be targeted by anti-avoidance regulations. The substance requirements and beneficial owner status of the payment recipient are the most crucial issues in dealings with the Polish tax authorities, since these are the areas they most commonly challenge.

Polish law also stipulates a WHT exemption for certain investment funds and pension funds.

Due to various tax advantages provided by the EU Parent-Subsidiary Directive and the EU Interest and Royalties Directive, most foreign investors invest in Polish corporations or in Polish debt via EU member states. The most common treaty countries are Luxembourg, the Netherlands, Ireland and Cyprus.

The application of Polish WHT exemptions or reduced rates is currently one of the key tax issues scrutinised by the tax authorities during tax audits. In most cases, the tax authorities try to challenge the substance of the intermediary holding company located in an EU country. The tax authorities usually claim that EU holding companies and intermediaries are used solely to benefit from the tax advantages provided by the EU Directives. Therefore, the sound business justification of the structure is necessary, as is the sufficient substance of the EU company that is the recipient of dividends, royalties or interest from Polish companies.

Foreign investors operating in Poland through a local corporation essentially have the following transfer pricing issues:

  • Compliance with the arm’s-length principle.
  • The obligation to prepare local transfer pricing documentation for transactions with affiliated entities exceeding certain thresholds (PLN10 million for commodity and financial transactions; PLN2 million for service and other transactions). The thresholds are lower for transactions with entities from countries applying harmful tax competition, amounting to: PLN2.5 million for financial transactions and PLN0.5 million for other transactions. In the case of transactions with entities from countries applying harmful tax competition, the obligation to prepare local transfer pricing documentation applies to both related-party and unrelated-party transactions.
  • The obligation to prepare group transfer pricing documentation for groups of entities whose consolidated revenues exceed PLN200 million.

There is no established practice of the Polish tax authorities challenging the use of related-party limited risk distribution arrangements for the sale of goods or the provision of services locally.

In transfer pricing audits, the Polish tax authorities primarily focus on verifying whether the transfer prices set between related parties have been agreed in accordance with the arm's-length principle. Therefore, the Polish tax authorities might challenge the use of related-party limited risk distribution arrangements for the sale of goods or the provision of services locally.

Polish transfer pricing rules do not vary from OECD standards.

The number of transfer pricing audits in Poland has been steadily increasing in recent years. The Polish tax authorities now make use of specialised tools, on the basis of which they effectively mark out taxpayers for transfer pricing audits.

All of the DTTs concluded by Poland provide for a MAP process, during which the competent authorities of the contracting states seek to eliminate double taxation. However, MAPs have not yet been commonly used to resolve international transfer pricing disputes in Poland.

The non-recognition of a transfer price between related parties leads to an increase in the income of the entity whose transfer pricing has been adjusted. In these cases, a compensating adjustment would be allowed at the level of the counterparty of the adjusted transaction, reducing its tax income. It is general practice that a compensating adjustment will be made to eliminate double taxation once a mutual agreement has been reached with the counterparty country following an application for a MAP. Moreover, Poland has recently implemented EU Directive 2017/1852, which provides for the shortening of the MAP.

A local subsidiary of a non-local corporation is an unlimited taxpayer in Poland, which means that it is taxable in Poland on its worldwide income. This income is not taxable at the level of a non-local corporation.

A non-local corporation can be taxable in Poland in particular on the business income generated by its branch in Poland. In this case, tax is levied on the income attributable to the activity performed in Poland by the non-local corporation through its Polish branch. DTTs include rules for eliminating the double taxation of the same income between Poland and the state in which the non-local corporation is a tax resident.

As soon as the business income taxable in Poland has been defined, the rules and rates of its taxation are similar for a Polish subsidiary and for a non-local corporation operating in Poland through a local branch.

Under the Polish income tax regulations, capital gains on the sale by a foreign shareholder of stock in a local corporation are taxable in Poland in two cases:

  • where at least 50% of the value of that corporation's assets consists of real estate located in the territory of Poland, or rights to such real estate; and
  • where shares in a real estate company are sold.

The real estate company is an entity for which at least 50% of the value of the assets is, directly or indirectly, represented by the market value of real estate located in Poland or the rights to this real estate, and the value of this real estate exceeds PLN10 million.

These provisions apply regardless of whether the real estate or the right to this real estate is held directly or indirectly by the entity whose shares are being sold. If an investor sells shares in a non-local holding that in turn owns stock in a local corporation whose prevailing assets consist of real estate or that fulfils the definition of a real estate company, this transaction will be deemed taxable in Poland.

In the event of a sale of more than 5% of the shares in a real estate company, this real estate company will be obliged to withhold the tax due from the seller in respect of the income from the sale.

The above-mentioned provisions can be modified by the applicable DTTs concluded by Poland, which generally provide for capital gains taxation only in the state of residence, unless there is a “real estate clause” in a given treaty.

A change of control, including the disposal of an indirect holding much higher up in an overseas group, can result in taxation in Poland if the assets of the holding mainly consist of real property in Poland; for more information, please refer to 5.3 Capital Gains of Non-residents. In principle, the tax rules concerning the sale of shares do not differ depending on whether or not the sale of the shares results in a change of control.

Apart from income taxation, a change of control – including the sale of stock in a local corporation – attracts taxation through the tax on civil law transactions at 1%. This tax is levied on the market value of the disposed shares, with certain exceptions, such as the sale of shares on the regulated stock market or via licensed intermediary companies. There is no transfer tax on civil law acts if the change of control is effected through the sale of shares in a non-local corporation, unless the buyer is a local entity and the share sale agreement is signed in Poland.

No particular formulas are used to determine the income of foreign-owned local affiliates selling goods or providing services. Local affiliates operating in Poland as separate taxpayers are generally taxable under the same rules as any other taxpayers. Polish branches of foreign entities are taxable on the income attributable to the activity performed in Poland according to the statutory rules (see also 5.2 Taxation Differences Between Local Branches and Local Subsidiaries of Non-local Corporations).

Tax regulations oblige taxpayers to keep accounting records in a manner that ensures the determination of the amount of income (loss), the tax base and the amount of tax due for the tax year.

In the case of taxpayers who are not Polish tax residents and who are obliged to keep accounting records in Poland (in respect of business carried out in Poland), when it is not possible to determine the income on the basis of such records, income is determined by estimation, at rates ranging from 5% to 80%.

In principle, a cost can be deducted by a local affiliate (a Polish taxpayer) if such cost:

  • is connected with the taxpayer's business activity;
  • has been incurred in order to obtain, preserve or secure revenue, or could affect the amount of revenue earned by the taxpayer;
  • has been incurred by this taxpayer – ie, it has been ultimately financed from the taxpayer's assets;
  • is definitive (real) – ie, the value of the expense incurred has not been reimbursed to the taxpayer in any way;
  • has been properly documented; and
  • has not been specifically listed in the tax law as an expense that is not considered to be tax-deductible.

Other restrictions also have to be observed, such as the non-deductibility of a cost in excess of PLN15,000 that has been paid without the intermediation of a bank transfer (eg, in cash).

If a local affiliate pays management and administrative (service) fees to a non-local affiliate, these payments are particularly prone to scrutiny by the tax authorities as services of an “intangible” character. In these cases, the tax authorities tend to scrutinise very closely whether management and administration services were actually performed (ie, are not fictitious), whether they were performed to the benefit of the local affiliate, and whether the fees have been agreed at arm’s length. In certain cases, services provided to a Polish affiliate by a foreign related entity have to be supported with statutory transfer pricing documentation.

The principal restriction is the obligation (stemming from the ATAD Directive) to exclude the excess of debt financing expenses from the tax-deductible costs, which applies to all domestic and foreign interest deductions (please see 2.5 Imposed Limits on Deduction of Interest).

Other tax considerations relevant for related-party borrowing include:

  • determination of the interest rate, which should be arm’s length;
  • determination of the method of tax deduction on the local level, if available; and
  • in respect of the cross-border payment of interest and WHT settlements:
    1. the obligation of the Polish borrower to review the tax status of the foreign lender (ie, the recipient of interest payments);
    2. the obligation to collect the WHT in the full amount from interest payments over PLN2 million, without applying any exemptions or reduced rates at source, unless the taxpayer (the lender) or the tax remitter (the borrower) receives a special opinion from the tax authority, or unless the tax remitter (the borrower) declares that it is in possession of the appropriate documents to prove grounds for the non-collection of the tax or the collection of the tax in a reduced amount; and
    3. a local WHT exemption on interest payments can be denied if the payments stem from a transaction that lacks business reasons and is aimed solely or mainly at obtaining a tax benefit (ie, specific anti-avoidance rule).

Polish tax law does not stipulate a general exemption for foreign income earned by Polish corporations. The general rule is that Polish tax residents are taxable on their worldwide income. As a consequence of this, Poland imposes tax on the foreign income of Polish corporate taxpayers, which includes all income derived from whichever source of income, and on all capital gains derived from certain sources, subject to certain exemptions. This income is subject to taxation in Poland at 19% (or 9%).

However, Polish corporations receiving foreign (inbound) income in Poland can credit against the Polish CIT taxes withheld in the country of source. Polish legislation states that this credit cannot exceed the Polish income tax on the same income. The method of elimination of this double taxation should be established by taking into account the regulations of the respective DTT.

Foreign income of local corporations is exempt from corporate tax in Poland if this exemption is expressly provided for in the local legislation or an applicable DTT.

No specific local expenses are listed in the tax legislation as being statutorily non-deductible due to connection with any exempt foreign income.

As a rule, in order to determine taxable income, the taxpayer should group its tax expenses into:

  • costs related to taxable revenue; and
  • expenses related to non-taxable revenue.

The latter are non-deductible. However, where a taxpayer incurs expenses to earn revenue from sources generating taxable revenue and expenses related to revenue that is not taxable (eg, is exempt from taxation), and it is not possible to allocate expenses directly to each of those revenues, these expenses will be deductible pro rata to the ratio of taxable revenue to the total amount of revenue in a given tax year.

Dividends (and other income from participation in corporate profits) received from foreign shareholders are included in the taxable revenue of the Polish taxpayer and taxed at 19%. An amount equal to the tax paid in the foreign country is deducted from the tax calculated in Poland on the total income. In principle, the amount of the deduction must not exceed that part of the tax calculated before the deduction has been made, which is proportionately attributable to the income earned in the foreign country (subject to certain further detailed rules).

Tax exemption is available for dividends received by Polish tax resident corporations (that do not benefit from a tax exemption on all their income) if:

  • the dividends are paid by a foreign subsidiary that is a tax resident in any EU or EEA member state, or in Switzerland, and is subject to income tax on all its income;
  • the Polish shareholder (ie, the recipient of dividends) holds at least 10% (25% in the case of a Swiss subsidiary company) of the shares in the subsidiary distributing the dividends for an uninterrupted period of two years, even if this minimum holding period expires only after the payment of dividends; and
  • the dividend is not deductible in any form in the home country of the subsidiary.

This dividend tax exemption will not apply to dividends paid in connection with the liquidation of a subsidiary.

The tax exemption can be rejected in the case of revenues derived from certain hybrid instruments, or if an anti-avoidance rule applies (lack of business reason).

The dividend income can also be exempt from Polish income taxation if the relevant DTT provides for such an exemption.

As of 2022, a specific tax exemption is available for dividends received by a qualifying holding company from its subsidiary.

Foreign subsidiaries are not taxable in Poland on intangibles developed by local corporations and used by foreign subsidiaries in their business activity.

From the perspective of local corporations, licence fees for the use of intangibles paid by foreign subsidiaries are subject to taxation in Poland (at 9% or 19%). However, local corporations can credit taxes withheld in the country of the foreign subsidiary against Polish income resulting from any received licence fees.

CFC regulations were introduced into Polish law at the beginning of 2015. The Polish definition of a CFC refers, among other things, to such criteria as the place of residence/management of the foreign entity and the nature of the income generated by the foreign entity. Under Polish regulations, foreign establishments of foreign entities may also be considered CFCs.

The tax on CFC income earned by local taxpayers is 19%. Taxpayers earning income through a CFC also have additional record-keeping and reporting obligations in Poland.

A CFC's income is not taxable in Poland if the CFC is subject to tax on all of its income in one of the EU member states or in a country of the European Economic Area and conducts substantial real economic activity in that country.

Polish regulations provide for a number of conditions that must be met in order for a CFC to be considered as conducting a real economic activity.

Polish tax resident corporations are taxable in Poland on their worldwide income, regardless of where it is earned (see 6.1 Foreign Income of Local Corporations). This means that the gains of a Polish taxpayer from the sale of shares in non-local affiliates are, in principle, taxed in Poland at 19%. DTTs can additionally include rules for the taxation of such income abroad, particularly under the real estate clause (as discussed in 5.3 Capital Gains of Non-residents).

As of 2022, a specific tax exemption is available in the case of a sale of shares in a qualifying subsidiary by a Polish qualifying holding company to an unrelated purchaser (please see 2.7 Capital Gains Taxation).

Poland has introduced a general anti-avoidance rule (GAAR), which aims to target artificial arrangements between taxpayers. The GAAR affects arrangements that lead to a tax benefit being obtained (in a very broad sense of its meaning) and are contrary to the purpose of specific tax provision, and if the manner of the taxpayer's action is artificial. Generally, “artificial actions” are those transactions that have no economic rationale. Transactions involving many steps of reorganisations without a sound legal or economic justification would also be considered artificial, as would transactions that involve engaging intermediaries in a limited role.

In addition to the general anti-avoidance regime, Polish income tax regulations stipulate many specific anti-avoidance measures targeting M&A transactions, transfer pricing, CFCs and many others.

Taxpayers are allowed to apply to the Polish tax authorities for a binding opinion on the application of the GAAR to a transaction that has already occurred, or that will happen in future.

There are no standard or regular routine audits conducted by the Polish tax authorities.

Poland has already implemented the following BEPS recommended changes:

  • anti-hybrid regulations – Action 2;
  • CFC regulations – Action 3;
  • limitation on interest – Action 4;
  • transfer pricing regulations – Actions 8–10;
  • mandatory Disclosure Rules – Action 12;
  • country-by-country reporting – Action 13;
  • participation in the Mutual Agreement Procedure – Action 14; and
  • MLI – Action 15.

The Polish government is in favour of BEPS and is constantly working on changes to enable the implementation of the recommended BEPS measures into the Polish legal system.

In the course of 2022, the Polish government took a very active role in negotiations for the implementation in the EU of Pillar One and Pillar Two. Poland is particularly interested in implementing solutions aimed at taxing the so-called “digital giants”, so both Pillars are very likely to be put into effect in Poland.

International tax has a very high public profile in Poland. The Polish government is constantly working on closing the number of international loopholes by implementing various different BEPS measures into the domestic tax system.

The Polish government does not pursue a competitive tax policy objective and generally focuses on implementing solutions to prevent the erosion of the tax base and profit shifting.

Basically, Poland does not have a very competitive tax system. However, it seems that the following key features affecting the competitiveness of the Polish tax system should be considered:

  • a relatively low CIT rate of 19% (in some cases this can be as low as 9%);
  • a broad tax treaty network; and
  • the R&D tax credit/innovation tax credit (IP Box).

Regulations on neutralising the effects of hybrid mismatch arrangements have been effective in Poland since the beginning of 2021. The main purpose of the anti-hybrid legislation is to address situations that take advantage of different tax treatments of an entity, or payment by different jurisdictions.

In particular, the Polish regulations refer to the following hybrid mismatches:

  • hybrid financial instrument;
  • hybrid entity;
  • hybrid permanent establishment; and
  • tax residency mismatches.

Under the Polish regulations, a taxpayer is not entitled to recognise a payment as a deductible expenseif said payment results in:

  • a double deduction of the same expense in two different jurisdictions; or
  • a deduction of an expense in one jurisdiction without the simultaneous recognition of revenue in another jurisdiction.

Due to the relatively short period of legislation on hybrid structures, practice in this area has not yet developed.

Poland does not have a territorial tax regime.

Under the Polish regulations, taxpayers with a registered office or management in Poland are subject to taxation in Poland on all their income, regardless of where it was earned. Taxpayers who do not have a registered office or management in Poland have a so-called limited tax liability – ie, they are subject to taxation in Poland only on the income earned in Poland.

Poland does not have a territorial tax regime.       

Poland is a party to the MLI Convention, which affects many concluded DTTs. In principle, Article 7 of the MLI Convention introduces a principal purpose test (PPT) and limitation of benefit (LOB) clauses. The provisions of the MLI Convention do not take effect on the same dates as the original provisions of each DTT; each of the provisions of the MLI Convention can take effect on different dates depending on the types of taxes involved (taxes withheld at source on non-residents’ income, or other taxes levied) and the choices made by the states (eg, the DTTs with Malta, Luxembourg, Belgium, the UAE and Singapore already include a reference to the PPT clause in Article 7 of the MLI).

In addition, Poland explores other anti-avoidance rules in concluded DTTs, such as a beneficial owner clause – widely extended in local regulations – or the look-through approach. The framework of the latter mainly results from the practice of the Polish tax courts and tax authorities in the absence of specific local provisions.

Polish transfer pricing regulations have been subject to numerous changes in recent years.

Currently, the Polish tax authorities are showing an increasing interest in transactions involving intangible assets. In the course of transfer pricing audits, the Polish tax authorities are increasingly conducting DEMPE (development, enhancement, maintenance, protection and exploitation) analyses, the purpose of which is to assess the ability of the parties to a transaction to perform a given function and bear a given risk in terms of the title, protection and maintenance, creation, development and enhancement, and exploitation of intangible assets.

Poland has adopted regulations on country-by-country reporting, which affect major multinational organisations. The key regulations in this field are included in the Act of 9 March 2017 on the Exchange of Tax Information with Other Countries.

Entities belonging to multinational groups and whose financial statements are consolidated at the group level are obliged to inform the Polish tax authorities about the country in which the CbCR report has been submitted, or to submit it in Poland. The information exchanged by the countries includes the size of their business (size of assets, share capital, number of employees), the amount of revenues realised, the profits (or losses) made, the tax paid (and due), the places of business and the subject of this activity.

Since July 2020, VoD platforms operators have been obliged to pay 1.5% of their profit obtained in Poland to the government, although this solution has not been proposed as a tax regulation.

Poland has not adopted any specific tax regulations addressing digital economy business.

The Polish government announced that it will take part in the OECD Pillar One and Pillar Two developments, and will follow the common measures taken in order to impose tax on digital companies. At least for now, any developments in the local taxation of the digital economy have been suspended.

Poland has not adopted any regulations in this area. In 2021 there was an initiative to adopt a local digital tax, which was supposed to be 5% on the revenue obtained from online advertisements presented to consumers in Poland, but work in this area has been suspended.

Poland has introduced a standard local 20% WHT rate on royalties. This tax can be excluded by applying the local implementing provisions of Directive 2003/49/EC. However, Poland stands hard on its position of verifying the beneficial owner status of the payment recipient, which makes it difficult to transfer tax-free royalties to holding companies that do not maintain a sufficient business substance.

Payments to tax havens that have not concluded a DTT with Poland will most likely result in the application of 20% WHT. These payments might also be affected by the look-through approach, which does not allow for the obtaining of a more beneficial treatment by including a treaty partner in the middle of the payment process.

Poland has also adopted special rules targeting aggressive tax planning with the use of profit shifting. Royalty payments made to related entities located in jurisdictions of a lower effective income tax rate can be subject to 19% local income tax in Poland.

Royalties can also be affected by the Polish CFC regulations if the payment recipient is considered to be a CFC.

Royalty payments should also be properly documented in order to avoid challenging the local cost deductions with transfer pricing regulations.

Hogan Lovells (Warszawa) LLP (Spółka partnerska) Oddział w Polsce

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Law and Practice in Poland

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Hogan Lovells (Warszawa) LLP (Spółka partnerska) Oddział w Polsce is a truly global legal practice offering complex assistance across more than 50 offices located on six continents. Considered one of the leading law firms in the country, the Warsaw office of Hogan Lovells has more than 20 years' experience in advising clients, offering a uniquely broad range of legal services and tax expertise. The Warsaw tax team is regarded as one of the foremost teams in Poland, and provides highly specialised, comprehensive, full-cycle tax planning, transactional and compliance support. It is uniquely experienced across a range of tax-related areas, including corporate, M&A, securitisation, international and local tax structuring and cross-border transactions, legislative tax policy, finance and insurance.