Corporate Tax 2024 Comparisons

Many entrepreneurs in Poland run sole proprietorships, but corporate forms are also very popular. Available forms include the following.

• Limited liability company (spółka z ograniczoną odpowiedzialnością, sp. z o.o.) – requires a minimum share capital of only PLN5,000 (about USD1,250). All its partners have limited liability, which makes this form suitable for enterprises operating in industries with increased risk.

• Joint stock company (spółka akcyjna, S.A.) – requires a capital of at least PLN100,000. It is intended for enterprises that want to raise funding from external investors and it allows for the easy issuance of new shares.

• Simple joint stock company (prosta spółka akcyjna, P.S.A.) – more flexible alternative to traditional joint-stock companies. The capital can be as low as PLN1, partners may contribute labour instead of a monetary contribution, and profit sharing can be different from the shares held.

• Limited partnership (spółka komandytowa, sp.k.) – the two types of partners are (i) general partners (manage the company and are fully liable for its financial obligations) and (ii) limited partners (they are liable only to the extent of the capital they have contributed). The income of general partners is taxed relatively favourably (they can deduct the tax paid by the company from their tax).

• Limited joint-stock partnership (spółka komandytowo-akcyjna, S.K.A.) – combines the features of S.A. and sp.k.; allows for combining the favourable taxation of a general partner with the possibility of raising external financing through the issuance of shares.

These corporate forms are taxed as separate entities, requiring their own tax filings and CIT payments on income. Profits to partners face double taxation, with some deductions available. A general partnership may incur CIT if a partner is a legal entity and the company fails to notify the tax office in a timely manner.

Currently, only two entities can be tax-transparent:

• general partnership (spółka jawna); and
• professional partnership (spółka partnerska).

In a general partnership, partners have unlimited liability for the company’s obligations, jointly with the company.

A partner in a professional partnership is not liable for the obligations of the company arising from the activities of other partners. The formation of professional partnerships is reserved exclusively for regulated professions such as lawyers, architects, doctors, notaries, or sworn translators.

None of the tax-transparent companies is subject to income tax. The income and expenses of the company are directly attributed to the partners. In many cases, these companies can maintain simplified accounting (so-called KPIR – tax revenue and expense ledger). It is also possible to form a civil law partnership – an agreement (arrangement) between partners in terms of their business activity. Unlike the previous entities, a civil law partnership does not have separate assets and is not responsible for obligations – its partners are the liable parties.

In the financial industry, investment funds are popular. The fund invests monetary resources collected through the public or private acquisition of participation units or investment certificates, in securities specified by the law, money market instruments, and other property rights. From 2024, the funds will not charge a lump sum tax upon payout to an individual. Investors pay the tax themselves, gaining the ability to offset profits and losses from funds and other financial instruments.

In Poland, companies are tax residents if their registered office or management is in Poland. A registered office is set by incorporation documents. Management implies organising current affairs from Poland, making a company a tax resident even if registered abroad.

In the case of transparent entities, the tax residency is determined for the partners of the entity. For partners who are individuals, the key factor is the place of residence, which will be in Poland if the person:

• stays in Poland for more than 183 days in a calendar year; or
• has a centre of personal or economic interests in Poland (a centre of vital interests) – this involves verifying whether the person has family, friends, a company, work or property in Poland.

Transparent entities operating in Poland may meet the definition of a permanent establishment and, as a result, the income of their foreign partners may be taxed in Poland.

Corporate Income Tax (CIT)

The basic rate is 19%. This tax is paid by all companies that have legal personality (they are not transparent). Sometimes foreign corporations are also obliged to pay this tax if they generate income in Poland.

Taxpayers who are starting a business or whose revenues do not exceed EUR2 million (so-called small taxpayers) can pay CIT at a rate of 9%. Income generated from the use of intellectual property rights (IP) can be taxed at a rate of 5%, provided additional requirements are met (so-called IP BOX).

Some companies may choose a lump sum tax on company income (commonly referred to as Estonian CIT), in which case income tax is payable only after the distribution of profits to shareholders. The tax rate is 10% for small taxpayers and 20% for others. Partners are entitled to deduct from their tax the amount of tax paid by the company.

Under CIT, taxpayers may be required to pay an additional tax on shifted profits (see 9.14 Taxation of Offshore IP), tax on real estate income, or minimum tax (effective from 2024).

Revenues of some entities are exempt from income tax – this is the case for family foundations (if they perform activities specified by regulations) or foundations conducting public benefit activities.

Personal Income Tax (PIT)

Individuals are taxed at a rate of 12% if their annual income does not exceed PLN120,000; income above this amount is taxed at a rate of 32%. A tax-free allowance of PLN30,000 is available.

Individuals earning income from business activities may choose to be taxed at a flat rate of 19%. Individuals whose annual income exceeds PLN1 million pay an additional 4% solidarity levy on the excess over PLN1 million. An additional option is the application of tax on recorded revenues, where the tax rate depends on the nature of the business activity and ranges from 17% to 2%. These incomes do not affect the obligation to pay the solidarity levy.

In 2022, a health insurance contribution dependent on income was introduced, significantly affecting the public law burdens of sole proprietors. Individuals taxed under general rules pay a contribution of 9% of income, individuals on flat tax pay 4.9% of income, and those taxed on a lump sum basis pay a relatively low fixed contribution.

Tax on incomes from tax-transparent companies is paid by the partners, who pay tax according to their status (depending on whether they are subject to PIT or CIT).

The basis for calculating tax is income, which is the surplus of revenues over the costs of generating them. An expense reduces income if it is related to the revenues earned or serves to secure or maintain the source of income.

Taxpayers are required to determine a separate tax base for incomes obtained from capital gains and other sources (operational activities).

Not all expenses and revenues recorded in the accounting books can be recognised in the income tax. Regulations do not allow for consideration, for example:

• 25% of expenses related to personal cars;
• depreciation write-offs from residential premises;
• representation costs; and
• fines like penalties and compensations.

Some revenues and costs are settled on a cash basis, ie, at the time of payment – this applies to interest and also to salaries paid after their due date.

The base established in this way may in some cases be reduced by various deductions, such as:

• incurred losses;
• donated donations; and
• tax reliefs (described in detail in 2.2 Special Incentives for Technology Investments and 2.3 Other Special Incentives).

In certain situations, there is no right to recognise costs, and the tax base is the revenue. This applies to, among others, received dividends, licence fees or minimum tax. In the case of tax on revenues from buildings, the tax base is the value adopted for depreciation purposes.

Research and Development Tax Relief

This relief applies to taxpayers engaging in R&D with specific expenses, allowing an extra income deduction for costs already accounted for. Deductible costs include materials, patents, expert opinions, lab equipment, and (at double the rate) salaries. If not all costs can be deducted in one year, they may be spread over the next six years or offset against the tax on R&D salaries, reducing monthly tax payments based on R&D expenses.

Prototype Relief

This covers the costs of fixed assets and materials and raw materials incurred after the completion of R&D work but before the start of serial production. Taxpayers can deduct 30% of the incurred costs, but no more than 10% of the income.

IP BOX

This allows applying a lower tax rate of 5% to income earned by the taxpayer from intellectual property rights, provided these rights are legally protected, and their subject was created, developed or improved by the taxpayer as part of their R&D activities.

The preference is available to taxpayers earning incomes from, in particular:

• patents;
• utility model protection rights;
• industrial design registration rights; and
• copyrighted computer software.

Income from the sale of the aforementioned rights, as well as income from licences granted for these rights or income from the sale of products, in whose price the value of the intellectual property right is included, can be taxed at the rate of 5%.

Robotics Relief

This relief concerns taxpayers who acquire new industrial robots and related machinery – along with their implementation and training for operation. Industrial robots are intended to improve the taxpayer’s production processes. It allows for deducting 50% of the incurred costs.

Polish tax regulations also provide for deductions for activities other than innovation.

Expansion Relief

This applies to manufacturing companies that increase their sales revenues, introduce products to new markets or manufacture new products. They can deduct from their income the costs incurred to increase sales revenues, such as costs of:

• promotion and advertising;
• participation in fairs;
• packaging adjustments; and
• preparation of product sales documentation.

It is possible to deduct up to PLN1 million annually.

CSR Relief

This relief supports the activities of sports clubs, cultural institutions and universities. It allows for a 50% deduction of costs incurred on sports, cultural or educational activities.

Relief for the Acquisition of Shares

This allows for the deduction of expenses incurred for the purchase of shares or stock in another company, but no more than PLN250,000. It applies when one company acquires shares in another and:

• the companies were not related entities for two years;
• both companies have the same business activity;
• shares granting an absolute majority of voting rights are acquired in one transaction; and
• the business activity is continued for at least two years.

Polish Investment Zone (PSI)

This concerns companies from the industrial sector and modern business services (eg, IT, R&D) after meeting specific criteria. It is necessary for a new investment to be made, which can be:

• establishing a new plant;
• increasing the production capacity of an existing plant;
• introducing products not previously manufactured by the enterprise; or
• a fundamental change regarding the production process in an existing plant.

The Polish Investment Zone offers up to a 15-year income tax exemption, up to 70% of investment value. Public aid intensity varies by entrepreneur size and location, ranging from 10% to 70% of investment costs. The exemption limit is based on new investment costs or new employee salaries for two years.

Loss deductions are limited to the same income source, disallowing offsets across different sources (eg, operational losses versus capital gains). Within the same source, losses can reduce income over five years, capped at 50% of the loss, with an upfront lump sum deduction up to PLN5 million in the first year.

Regulations limit the possibility of settling losses in the case of certain reorganisations. A company that acquires or takes over a business or its organised part will not be able to deduct the losses of the acquired entity from its income if:

• the subject of the company’s activity changes (in whole or in part); or
• there are changes in the structure of partners in such a way that at least 25% of the shares will be held by an entity that was not previously a partner of this company.

Only paid interest can be considered in the tax result. Accrued interest that is accounted for but unsettled does not constitute either tax revenue or costs.

A cap has been set on so-called debt financing costs, including interest, commissions, lease interest, late payment fees, and obligation security costs. Taxpayers must exclude financing costs exceeding the higher of PLN3 million or 30% of EBITDA from taxable costs. The excess is the debt financing costs over the taxpayer’s interest income for the year. These excluded costs can be deducted over the next five years.

Regulations permit the formation of a Tax Capital Group (Podatkowa Grupa Kapitałowa, PGK), which requires at least two capital companies that constitute a capital group in accordance with accounting regulations.

The idea behind this model is that a group of companies can jointly settle incomes and losses, with the parent company being responsible for CIT settlements.

To form a PGK:

• the parent company must own at least 75% of each subsidiary’s share capital;
• each company’s average share capital must be at least PLN250,000;
• the group must exist for a minimum of three tax years; and
• the PGK’s composition should generally remain unchanged, though member reorganisations are permitted.

From 2023, it is also possible to establish a VAT Group (Grupa VAT, GV), which operates on a similar principle to the tax capital group but covers settlements under the value-added tax.

These solutions are not particularly popular in Poland – in 2023, there were 71 PGKs and 21 GVs operating.

Capital gains primarily include:

• dividends;
• income from the sale and redemption of shares;
• the value of assets received in connection with the liquidation of a company; and
• profit designated for increasing the share capital.

Income and costs from capital gains are accounted for separately from other sources of income. The tax rate is 19%. The income earned can be reduced by incurred costs: for example, the costs of acquiring shares or the amount of the contribution made.

Several possibilities for applying reliefs are envisaged in the area of capital gains.

• Dividend exemption –This applies to dividends, profit transferred to share capital, and undivided profits left in the company in the case of conversion into a transparent entity. It can be applied in the case of profit distributions between all CIT taxpayers if:
1. the distributing company is based or managed in Poland;
2. the receiving company is a resident of Poland/EU/EEA; and
3. the parent company holds at least 10% of the shares in the subsidiary and does not benefit from income tax exemption.
• Alternative Investment Company (AIC) –The sale of shares by an AIC is exempt from tax if:
1. before the date of sale, the AIC directly holds at least 5% of the shares in the capital of the company whose shares are being sold;
2. at least 5% of the shares were held by the AIC before the date of sale for an uninterrupted period of two years; or
3. properties located in Poland do not constitute more than 50% of the value of the assets of the company being sold.
• Investment funds – Income from capital gains of open investment funds and specialised open investment funds is exempt from CIT. In the case of closed funds and specialised open investment funds that apply the principles for closed funds, an exemption also applies, although it does not cover certain categories of income, for example, income from shares in transparent companies.
• Polish Holding Company (PSH)– allows for tax exemption.
• Polish Family Foundation– allows for tax deferral.

More about the family foundation and Polish Holding Company is discussed in the Trends & Developments chapter of this guide.

The main taxes related to transactions are Value-Added Tax (VAT), excise duty, and the tax on civil law transactions (PCC).

The regulations concerning VAT and excise duty are based on EU legislation. Both tax-transparent companies and corporate income tax taxpayers, as well as individuals, are taxpayers within the meaning of the VAT regulations. VAT registration is mandatory after exceeding PLN200,000 in turnover, and for some transactions, regardless of the amount. Generally, VAT for enterprises should be neutral.

PCC is a capital tax levied on specific civil law transactions. For business entities, it most often concerns:

• sales or exchange contracts;
• loans; and
• founding acts.

As a rule, the basis for calculating the tax is the market value of the transaction – the sales price, the amount of the loan received, and the value of the contributions made. The tax rate ranges from 0.5% to 2%.

If a given transaction is subject to VAT (taxed or exempt), it is not subject to PCC with exceptions: transactions related to real estate as well as shares and stocks in commercial companies.       

Entrepreneurs also frequently encounter the following taxes and fees:

• property tax, which is levied on owners and certain holders of land, buildings or structures;
• transport vehicle tax, paid by owners of trucks, trailers and tractors;
• stamp duty, paid for powers of attorney and actions taken by state administration bodies (for example, when submitting an application for a certificate); and
• environmental fee, for the emission of gases and dust into the air, and for waste disposal.

Some taxes and fees are specific to certain industries:

• retail sales tax, collected from sellers selling goods to consumers whose revenues exceed PLN17 million monthly;
• sugar tax;
• tax on alcoholic beverages with a capacity of up to 300 ml;
• recycling fees for single-use packaging (from 2024) and single-use shopping bags; and
• tax on certain financial institutions.

Polish regulations do not distinguish between companies with a small number of shareholders and other forms of business activity in terms of tax regulations. A group of people wanting to conduct business together can choose from any of the available forms, hence partnerships, personal companies, limited liability companies (LLCs) and limited partnerships are popular.

In cases where shareholders are family or well-acquainted, partnerships such as general partnerships or limited partnerships, which are associated with unlimited liability on the part of the partners, are often chosen. If the connections between people are mainly business-oriented, limited liability companies are more frequently selected, as they provide protection for all partners.

From a tax perspective, it can be said that a lower tax rate is largely associated with greater responsibility for the company’s liabilities.

The main instrument of similar significance to closely held local enterprises in other countries is the family foundation, as the tax rate on profits depends on the degree of kinship with the founder.

Although at first glance it may seem that conducting business in a corporate form is less tax-efficient due to double taxation (first, the tax is paid by the company upon making a profit, and, secondly, by the partner upon receiving dividends), this is not necessarily the case. In the case of some companies, partners who are fully liable (general partners) may effectively be taxed at a rate of 19%. In the case of sole proprietorships, entrepreneurs are burdened not only with income tax but also with health insurance contributions and a solidarity levy, unless they opt for a lump-sum tax on revenues – which can be a very advantageous form of settlement.

In Poland, the accumulation of profits may be hindered by current taxation. However, there are certain tax benefits that can encourage the non-distribution of dividends to shareholders.

Polish regulations provide for several instruments designed to encourage the accumulation of profits for future investments:

• lump sum tax on company income – its essence is the absence of taxation on current income; the obligation to pay tax arises only at the moment of profit distribution to partners;
• family foundation – serves as a holding entity, as profits paid from companies to the family foundation are not taxed; the family foundation can also provide loans to the companies in which it is a partner; and
• investment fund – allows for the inclusion of the amount of profit for the previous tax year, which will be allocated to a special investment fund, as deductible tax expenses; the profit amount must be transferred to a separate bank account and spent within three years on the acquisition or production of fixed assets.

Due to the absence of special regulations for closely held corporations, the taxation rules for both the sale of shares and the distribution of dividends are the same regardless of the number of shareholders – a 19% PIT rate is applied.

Polish tax regulations do not differentiate the tax rate based on whether a company is publicly listed. They provide for the so-called IPO relief, which applies to entities that:

• are not listed on the Stock Exchange; and
• intend to issue additional shares in an initial public offering, making the company public by introducing its shares to stock exchange trading.

The company issuing shares can recognise 150% of the incurred expenses in tax costs. Meanwhile, an individual investor, if they hold the shares for at least three years, will not pay tax on the profit from the sale.

In Poland, when tax treaty benefits are inapplicable, withholding tax (WHT) rates are 19% for dividends and 20% for interests, royalties and some fees (including services like advisory or legal).

However, for payments within these categories to companies located in the EU or the EEA countries, a tax exemption may be possible if the conditions specified under EU directives or relevant Double Tax Treaty (DTT) are met. Specifically, for dividends, the exemption applies to recipient companies that have maintained at least a 10% shareholding in the paying company for a minimum period of two years, in alignment with the EU Parent-Subsidiary Directive criteria. For interest payments or licensing fees, the eligibility for exemptions or reduced rates largely depends on the specific tax treaty between Poland and the recipient’s country of residence.

During audits, Polish tax authorities focus heavily on verifying the payer’s compliance with the conditions for applying such preferences. Payers of dividends, interests or fees are required to exercise due diligence and gather appropriate documentation that confirms the actual ownership of the payments and the entitlement to benefit from preferential WHT rules under applicable laws or agreements. Any attempts at tax optimisation through artificial structures intended to avoid taxation may be scrutinised and challenged by the authorities.

It is important to note Poland’s Pay & Refund mechanism, which is limited to specific cases: it applies to payments over PLN2 million to a single recipient in a tax year, only affects certain payments like interest or dividends, and is for transactions between related entities. Initially, standard WHT is applied, with a possible tax refund upon request.

Due to the favourable legal and tax regulations in force within the legal system of the European Union, it is often the countries belonging to the EU that are investors in Polish entities. The countries most commonly used for this purpose, due to their entrepreneur-friendly tax system, include the Netherlands, Malta, Luxembourg and Cyprus.

In the context of WHT, Polish tax authorities pay significant attention to the actual ownership of the payments. Due diligence by Polish companies making payments to foreign entities is crucial to potentially apply tax exemptions or preferences, as these areas are often subject to tax audits. It is worth noting that taxpayers have the right to contest overly strict actions by tax authorities in court, which is often an effective strategy.

The use of intermediary entities from countries with which Poland has tax treaties can be challenged during audits if the recipient lacks real and substantial economic activity. Therefore, intermediary entities must be justified by genuine business and economic reasons, ensuring that the holding company receiving payments from Polish subsidiaries is a genuinely operating economic entity, not included in the structure solely for tax reasons.

In Poland, the Pay & Refund mechanism enhances tax authorities’ oversight of exemption and preference use by taxpayers (see 4.1 Withholding Taxes).

When concluding transactions, foreign entities operating in Poland should pay attention to:

• compliance with the arm’s-length principle;
• the obligation to prepare local transfer pricing documentation for transactions with related entities exceeding certain thresholds (PLN10 million for commodity and financial transactions; PLN2 million for service and other transactions);
• the obligation to prepare local transfer pricing documentation in the case of transactions with entities from countries practising harmful tax competition, regardless of the relationship (PLN2.5 million for financial transactions and PLN500,000 for other transactions);
• the obligation to prepare group transfer pricing documentation for entities consolidating financial statements and whose revenues exceed PLN200 million; and

• the obligation to prepare a benchmarking analysis for transactions made by taxpayers whose revenues or financial costs in the year preceding the year for which the documentation is prepared reached the equivalent of EUR10 million.

There is no established practice of the Polish tax authorities challenging the use of related-party limited risk distribution arrangements. In the case of transfer pricing inspections, the most important thing for Polish authorities is to check whether the transfer price established between related entities was agreed on an arm’s length basis. If the price is influenced by arrangements regarding the distribution of risk between related entities, it may be questioned. However, at the moment, there are no specific regulations in Poland related to the application of arrangements for the distribution of limited risk between related entities.

Polish transfer pricing regulations do not differ from OECD standards.

In recent years, the number of transfer pricing audits in Poland has been systematically increasing. Polish tax authorities currently use specialised tools on the basis of which they effectively select taxpayers to control transfer prices.

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

If the competent authority in the foreign country makes a transfer pricing adjustment, the Polish entity may request a corresponding (compensating) adjustment to avoid double taxation. The condition is the existence of a relevant international agreement between Poland and the other country.

The adjustment occurs as a result of a decision made under the Mutual Agreement Procedure (MAP). The MAP can be initiated on the basis of the relevant DTT or the EU Arbitration Convention. An alternative to the MAP is the procedure provided for in Council Directive (EU) 2017/1852 or a unilateral correction, in which the adjustment is made independently by the Polish tax authority.

In Poland, both Polish subsidiaries of foreign companies and Polish branches of foreign entities are taxed similarly. Subsidiaries are taxed in Poland on their entire income, regardless of where it is earned. Thus, they will pay their corporate income tax from current activities in Poland. In principle, taxation should not occur in the country where the foreign parent company is based; however, legal regulations arising from the relevant tax treaty, as well as other rules that may result from the tax laws of the country of domicile, should be analysed each time.

In the case of branches established in Poland by foreign entities, only the income earned by that branch is subject to Polish corporate income tax. Based on the provisions of the relevant DTT it is possible to avoid double taxation, in particular by applying regulations that allow the foreign company to deduct the tax paid in Poland on the branch’s income.

The detailed rules regarding the taxation of income, including applicable tax rates, are the same for Polish subsidiaries and branches of foreign companies.

Foreign entities selling shares in Polish companies are generally taxed based on relevant tax treaties, which usually favour the seller’s country of residence. However, Poland may tax sales involving real estate companies if over 50% of the sold company’s assets are Polish real estate (or rights to it) or the company is a “real estate company” under Polish law – defined as having at least 50% of assets in Polish real estate valued at over PLN10 million and 60% of income from real estate rights. Indirect real estate ownership also qualifies a company for taxation in Poland. For sales exceeding 5% of shares in such companies, the company itself must collect and remit the tax. Tax treaty specifics should be reviewed as they can override Polish laws and affect taxation.

In Poland, there are no specific regulations concerning taxation in the event of a change of control in companies. General rules applicable to the sale of shares will apply (as described in 5.3 Capital Gains of Non-residents).

It should also be remembered that the sale agreement of shares in a Polish holding will be taxed with PCC. The tax rate is 1%, and the tax base is the market value of the sold shares or stocks. Certain transactions may be exempt from the PCC.

Polish regulations do not provide any separate rules for determining the taxable income earned in Poland by subsidiaries of foreign entities. The same rules that apply to other companies operating in Poland are applicable in this matter. In the case of Polish branches established by foreign companies, income is determined solely for the activities of that branch.

The basis for determining taxable income is the accounting books, which taxpayers are required to maintain according to the regulations. It is on their basis that revenues, costs, taxable income and the amount of tax due in a given tax year are determined. For a branch of a foreign company operating in Poland, it is mandatory to keep separate accounting records in accordance with Polish regulations.

For subsidiaries (including branches or Polish companies), the same tax rules apply as for Polish taxpayers. Expenses related to the subsidiary’s economic activity, aimed at generating or securing income, not reimbursed, and properly documented, can be tax-deductible unless they are listed as non-deductible in Polish regulations.

Payments over PLN15,000 must be made via bank transfer to qualify as tax-deductible expenses; non-bank payments are excluded.

There are no obstacles for Polish subsidiaries making payments to the parent company for management or administration services. For intangible services such as management and consultancy, maintaining proper documentation to confirm service provision is essential. These services often attract scrutiny from tax authorities and are prone to detailed audits, underscoring the need for companies to securely document that services were rendered as claimed. Additionally, subsidiaries may need to collect WHT on these payments.

As with all kinds of transactions and payments between related entities, it is also necessary in the case of such services to ensure that transaction conditions are determined at arm’s length. This stems from transfer pricing regulations that apply in such situations.

In loan transactions between related entities, transfer pricing regulations necessitate establishing market conditions for the loan. Non-market conditions may lead to income adjustments and additional liabilities.

Polish regulations limit the deduction of certain financing costs as tax-deductible expenses. Consequently, Polish subsidiaries and branches of foreign companies in certain situations cannot fully deduct interest costs from loans obtained from foreign-related entities in their taxable income calculations (detailed further in 2.5 Imposed Limits on Deduction of Interest).

Interest payments by Polish subsidiaries to foreign entities are subject to WHT. Exemptions from WHT or the application of preferential rates depend on statutory conditions and the relevant DTT.

According to Polish tax regulations, as a general rule, Polish companies earning income abroad are obligated to tax it in Poland. This means that essentially all income earned abroad by Polish tax residents, regardless of its source, as well as certain income from capital gains (eg, selling shares), will be subject to taxation in Poland at a rate of 9 or 19% (depending on the company’s status and size) – unless exemptions provided by the regulations apply.

However, such income will not be double-taxed in every case. Polish companies earning income from foreign sources have the possibility to deduct from the CIT due in Poland the WHT paid abroad. The amount of the deduction cannot exceed the tax that the company would have to pay in Poland on this income. The deduction mechanism described above should be applied taking into account the method of avoiding double taxation specified in the relevant tax treaty.

The exemption of Polish companies from the obligation to pay tax in Poland on income earned abroad can only occur when it is provided for by law or DTT.

Polish regulations do not specify any particular costs that could not be considered as tax-deductible expenses due to their association with foreign income exempt from taxation.

Polish tax law splits expenses into deductible costs related to earning taxable income and non-deductible costs not tied to income generation or listed as excluded. Expenses not clearly tied to taxable income, affecting both taxable and exempt incomes, qualify for proportional deductions in Poland.

Polish tax residents pay a 19% CIT on dividends from foreign entities, with deductions allowed for foreign withholding tax, capped at the Polish tax on that income. Exemptions may apply under specific double taxation agreements.

Polish regulations also provide for a complete exemption from taxation on received dividends under certain conditions:

• the company paying the dividend is a company subject to unlimited tax liability on its entire income in another EU, EEA state or Switzerland;
• the Polish company receiving the dividend is a taxpayer of corporate income tax in Poland and does not benefit from a tax exemption; and
• the Polish company directly owns at least 10% (25% if the dividend is paid by a Swiss company) of the shares or stocks in the capital of the company paying the dividend, for an uninterrupted period of at least two years.

The two-year shareholding period for tax exemptions can extend beyond dividend payment, but failure to meet this condition results in the Polish company owing back taxes plus interest.

It should be noted that the above tax preference may not apply in certain cases: for example, when the dividend is paid in connection with the liquidation of a company, or if the amounts paid as dividends have been included in any form in the costs or deducted from the income, tax base or tax in the company paying the remuneration.

Currently, there is also a so-called holding exemption in Poland. It also allows some Polish companies to be exempt from tax on dividends received from foreign companies or income from the sale of shares.

There is no barrier to Polish companies allowing their foreign subsidiaries to use intangible assets and legal rights, provided the dealings adhere to market-value transfer pricing rules. The compensation received by the Polish company for licence fees will be taxed with income tax at rates of 9% or 19%. At the same time, it is possible to deduct from the tax due in Poland WHT paid abroad.

Polish companies with earnings from Controlled Foreign Corporations (CFCs) in countries with lower tax rates are required to tax those incomes in Poland. This measure aims to deter aggressive tax planning and shifting of profits through artificial structures.

Key criteria for defining a CFC include: Polish company’s control over a subsidiary, its location in a tax haven, or its receipt of mainly passive income. According to the statutory definition, foreign branches of subsidiaries can also be considered controlled foreign entities.

Polish companies must pay a 19% tax on overseas earnings from controlled entities, applicable only to their share of the profits. Polish entities earning incomes through CFCs are also required to file a separate tax declaration for each controlled foreign entity. Polish taxpayers must also maintain an appropriate CFC register.

Not every foreign subsidiary will be recognised as a CFC according to Polish regulations. If a foreign company is subject to taxation on its entire income in one of the countries belonging to the EU or EEA and conducts genuine substantive economic activity, the CFC taxation rules will not apply to its income. Consequently, such income will not be subject to taxation in Poland.

Therefore, it is crucial to carefully examine whether the foreign company is conducting actual economic activity. Factors influencing this assessment can include the existence of valid economic reasons for the company’s operation, the ratio of passive income to total income, the foreign company’s possession of premises and qualified staff, and the company’s independent contracting. Each case should be analysed individually.

As a general rule, the sale of shares in a foreign company by a Polish company will be taxed in Poland with income tax at a rate of 19%. Provisions of the relevant tax treaties may provide separate rules for the taxation of such sales abroad. In particular, different taxation rules may apply to the sale of shares in foreign companies that primarily own real estate.

Income from the sale of shares in a foreign company by a Polish company may also, in some cases, benefit from the “holding exemption”. This will apply to certain Polish holding companies if the sale of shares is made to an unrelated entity. A condition for the exemption is also prior notification of the intention to sell being given to the appropriate tax authority.

GAAR Context

In 2016, Poland took a significant step against aggressive tax planning by incorporating the General Anti-Avoidance Rule (GAAR) into its legal framework. Reflecting the EU’s Anti-Tax Avoidance Directive (ATAD), this initiative aimed to eliminate tax schemes that, despite being formally legal, contradicted the legislator’s intentions. The GAAR’s core purpose is to counteract manoeuvres aimed at securing an unjustified tax benefit through means deemed artificial and misaligned with economic reality. Its application, exclusively initiated by the Head of the National Revenue Administration, introduces a stringent level of oversight.

“Specific Clauses” (SAARs)

In conjunction with the GAAR, the legislator introduced Specific Anti-Avoidance Rules (SAARs) addressing scenarios like mergers, divisions, operations within special economic zones, and dividend payments to parent companies. The tax neutrality of these actions hinges on the economic justification behind them. Crucially, SAARs can be enacted by any applicable tax authority, extending beyond the central level.

Experiences With GAAR Application

From its inception until the end of 2023, the Head of the National Revenue Administration initiated 188 proceedings under the GAAR, culminating in 149 decisions. Though seemingly modest against the backdrop of the national economy, this figure reflects a diligent approach to curbing tax avoidance. Predominantly, the proceedings involve Personal Income Tax (PIT) and domestic matters, mainly concerning capital income. A notable portion of Corporate Income Tax (CIT) decisions scrutinises the tax treatment of amortisation on intangible assets and legal rights. Significantly, the GAAR permits challenging tax benefits even for actions undertaken before its enactment, provided their impact emerges subsequently.

Protective Opinions as a Safety Mechanism

Taxpayers can request an advanced protective opinion to ascertain that a planned action will not trigger the GAAR, with 172 requests submitted to the Head of the National Revenue Administration by the end of 2023. Of these, 91 received affirmative responses, indicating a potentially effective safeguard against the GAAR’s implications. However, the process entails notable costs and a waiting period (approximately six months), with refusals and non-considerations due to formalities underscoring bureaucratic hurdles.

New Directions in Procedures

Recent procedural adjustments, which delegate certain proceedings to designated Customs and Tax Offices, may aim to enhance administrative efficiency. Yet, for taxpayers, such shifts might elevate the risk of GAAR enforcement and exacerbate the uncertainty surrounding future tax authority rulings.

Summary

The implementation of the GAAR and accompanying SAARs in Poland’s legal system represents a critical move towards enhancing transparency and equity in the tax domain. While these measures offer mechanisms to combat tax optimisation, they concurrently pose challenges for taxpayers, who must carefully navigate a complex legal terrain, ensuring vigilance and adherence to regulatory standards.

The only statutory audit obligation in Poland is the annual audit of financial statements for entities with at least EUR2.5 million in assets and EUR5 million in revenues. In the remaining scope, all activities related to audits in companies undertaken by taxpayers are voluntary.

However, it is worth pointing out that in 2020, the Polish authorities introduced the possibility of concluding the so-called co-operation agreements between the largest taxpayers (whose revenues exceed EUR50 million) with the office. The purpose of concluding such an agreement is to ensure compliance by the taxpayer with the provisions of tax law. This goal is achieved in conditions of transparency of actions taken and mutual trust and understanding between the tax authority and the taxpayer, taking into account the nature of the taxpayer’s business. The activities undertaken as a result of the concluded agreement last all year round.

The co-operation agreement therefore provides the largest taxpayers with certain benefits. Firstly, it may be an opportunity to minimise tax risk in the company. Secondly, its conclusion may enable the entrepreneur to enter into a constructive, substantive dialogue with the tax authorities in a relationship based on mutual trust.

In accordance with the existing BEPS recommendations, Poland has implemented the recommendations that concerned it (Action 2, 3, 4, 8–10, 12, 13, 14, 15). The positive assessment in the last reporting period and the fulfilment of all transparency standards resulted in no recommendations being formulated in the case of Poland.

Already in 2022, the Polish government was very active in negotiations regarding the implementation of Pillar One and Pillar Two in the EU. Poland is still particularly interested in implementing solutions aimed at taxing the so-called “digital giants”, but at the moment no decisions have been made on when this will happen.

Currently, the government is focusing on another aspect as part of Pillar Two. In 2024, the government is to introduce a law implementing the global minimum tax (Pillar Two). Changes in Poland in this area are to enter into force on 1 January 2025.

The Polish government and public opinion express great commitment to the issue of international taxation. The Polish government is constantly working on implementing various BEPS solutions into the national tax system.

The Polish authorities do not implement any activities in the field of competitive tax policy. At the moment, they are focusing on implementing solutions to prevent tax base erosion and profit shifting.

Poland, as a rule, is not a country with a competitive tax system. However, it is worth pointing out that in recent years the Polish government has implemented several specific solutions that have features that improve the competitiveness of the Polish tax system:

• introduction of a reduced corporate income tax rate of 9% (for smaller taxpayers whose revenues are less than EUR2 million);
• application of the 19% CIT rate, which is relatively low compared to other countries;
• creating a network of international tax agreements; and
• introduction of tax relief for research and development/innovation relief (IP Box) and reliefs related to innovation.

Regulations related to the treatment of hybrid instruments were introduced in Poland relatively recently. There is no established practice in this area yet. Their purpose is to properly regulate the tax consequences related to the creation and use of hybrid structures – as a rule, their use results in the need to exclude certain items from tax costs, or to include certain amounts in tax revenues.

Regulations regarding discrepancies in the classification of hybrid structures (hybrid mismatches) are intended to address, among others, circumstances where:

• there are double deductions of costs;
• there are differences in the characteristics of financial instruments, payments or entities, or the allocation of costs between the establishment and the headquarters; or
• the deduction is made without being recognised in revenue.

According to Polish regulations, this may occur when there are:

• discrepancies in the qualifications of hybrid entities;
• discrepancies regarding the qualifications of a hybrid tax establishment; and
• discrepancies regarding dual tax residence.

There is no territorial tax regime in Poland. There is full taxation of income from capital gains obtained abroad and full exemption from foreign dividends in Poland.

Taxation of controlled foreign corporations is described in 6.5 Taxation of Income of Non-local Subsidiaries Under Controlled Foreign Corporation-Type Rules and 6.6 Rules Related to the Substance of Non-local Affiliates.       

DTT and MLI apply in Poland (Poland is a party to the MLI Convention). The provisions of the MLI Convention did not enter into force on the same dates as the original provisions of the DTT – both the DTT and the MLI should be verified independently in this respect. These differences occur depending on the type of tax and the choices made by countries (eg, the DTTs with Luxembourg, Belgium, Malta, UAE and Singapore contain a reference to the PPT clause in Article 7 of the MLI).

Moreover, rules against tax avoidance, in particular the beneficial owner clause, function very well in Poland. This concept is also described in great detail in national regulations. In this respect, extensive practice has been developed in Poland by Polish tax courts and tax authorities.

Further changes in Polish transfer pricing regulations appeared in 2023. In addition to simple technical issues, ie changes in the deadlines for preparing documentation, the issue of reporting transfer prices to the Polish tax authorities has also been clarified.

Increasing sanctions are being introduced for failure to properly document transactions. Currently, Polish authorities are particularly focused on controlling transactions related to the provision or use of intangible assets, financing between related entities, and the provision of goods.

In Poland, regulations on reporting by country have been in force since 2017. The CbC report is intended to prevent base erosion and profit shifting (BEPS). The CbC report provides local tax authorities with insight into revenues, profits, taxes paid and accrued, employment, capital, fixed assets, and much other information about the group.

According to the assumptions, the generation of national reports by entities obliged to do so and the automatic exchange of information about them between jurisdictions will enable tax authorities to better verify the data they have about individual taxpayers.

Nevertheless, taxpayers in Poland face numerous challenges, including:

• the correct definition of responsibilities;
• data collection; and
• selection of the appropriate form or method of submitting the report.

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

However, the Polish government is actively involved in work on Pillar One and Pillar Two of the OECD and is monitoring actions taken to impose a tax on digital companies. It is possible that this topic will be important for the authorities in Poland in the near future.

It is worth noting that in Poland, from 2020, VoD platform operators are obliged to pay the government 1.5% of the profit obtained in Poland. This solution was not proposed as a tax regulation, although it undoubtedly operates on its principles. However, the revenues from this increase year to year.

Poland has not adopted any regulations in this area.

Poland did not introduce any specific rules regarding taxation of the Offshore IP. Paying royalty fees (any remunerations for the use of copyright and related rights, patents, or trade marks) to foreign entities involves the obligation for Polish companies to collect WHT at a rate of 20%.

In certain cases, it is possible to refrain from collecting the tax or to apply a preferential tax rate. Currently, Poland has also implemented a Pay & Refund mechanism (see 4.1 Withholding Taxes).

To benefit from the preferential taxation rules, it is necessary for the foreign company to at least have a valid certificate of residence. Polish tax authorities also emphasise the obligation to determine the actual owner of the remuneration.

If the licensor’s headquarters, to whom the Polish entity pays royalties, is located in a so-called tax haven with which Poland does not have a DTT, it will be necessary to collect WHT. The same situation occurs if the payment is made to an intermediary company, but the actual owner of the remuneration is an entity from a tax haven.

The taxation of royalties may also be affected by regulations concerning CFC and tax on shifted profits, which aim to prevent tax avoidance through the transfer of profits abroad.

Polish tax authorities approach the control and verification of the conditions for applying WHT preferences very strictly, which significantly increases the risk for taxpayers. Proper due diligence is crucial to determine right to preferential WHT rules.