The regulations concerning the taxation of corporate income of legal persons are contained within the Corporate Income Tax Act, and (outside of well-defined exceptional circumstances) set the corporate income tax at 19% of the taxable base.
All CIT taxpayers are obligated to keep accounting ledgers under conditions specified in the relevant legislation, mainly the Acocunting Act.
Who is subject to CIT?
As stated in the legislation (Corporate Income Tax Bill), the entities liable for CIT are:
- Legal (as opposed to natural) persons, meaning companies formed under Commercial Companies Code.
- Unincorporated organizational units (excepting unincorporated partnerships). This includes companies which are in organisation and limited jointstock partnerhips, if their registered office or management board is located within the borders of Poland.
- Tax groups of companies. A tax group comprises of at least two incorporated commercial law companies which are bound by ties on the capital level and meet the rest of lawful requirements.
- Unincorporated companies which have their registered office or management board abroad, if they are (according to the law of their home country) legal persons and liable for taxation there on the entirety of their revenues, regardless of where the income originates.
Any CIT taxpayer with a registered office or management board within Polish territory is subject to taxation, regardless of the place their income was generated – they have unlimited tax liability.
Those who have neither their registered office or management board in the territory of the Republic of Poland are subject to limited tax liability and are thus taxed only on the income earned within Polish borders.
Object of taxation
Any income the taxpayer has achieved is subject to corporate income taxation. The exceptions – not as to whether they are taxed (they are) but concerning the way in which CIT is applied to them – are specified within the Corporate Income Taxation Act, and it would be wise to pay attention especially to Articles 10 and 21. The crux of Article 10 is that the revenue achieved from participation of the profits of legal persons (in any form) is only subject to taxation if it can be considered real income. Article 21 enumerates the forms of economic activity which, if carried out by a foreign operator, are taxed a flat rate 20% or 10% instead of being counted towards the the taxpayer’s base tax liability.
The relevant law also contains, within Article 17, a list of tax exemptions. They are granted to associations, foundations, societies etc. which realize „socially useful purposes”, and the revenues exempt must be laid down in order for such a socially useful purpose to be realized. These objectives must also be statutory objectives of these bodies’ activities.
Article 12 of the Corporate Income Tax Act states that tax revenues are, in particular,cash value, received money, any exchange difference or the value of goods received partly in return, rights or other benefits. It also specifies that revenues connected with an economic activity are also to be considered receivabble income, and thus taxable, even if they have yet to actually be received (on the principle of accrual-based income), once the value of granted discounts and returned goods has been deducted.
The general rule for determining the date of commencement of revenue is that income is payable on the date of the release of goods, provision of services or sale of property; the day on which an invoice was issued or the claims settled.
When it comes to services settled in specified settlement periods, income is counted as arising on the last day of the specified accounting period, which may last no more than a year. The solution is also used in cases of supplying electricity, heat, gas and other media.
In any cases to which the rules described above do not apply, the date of the receipt of payment is legally considered the date of the revenue.
Tax deductible costs
There is no closed list of all expenditures which might be considered tax deductible costs in CIT, unlike when it comes to personal income tax. The logic follows that economic activity is next to unlimited in scope and sometimes deeply unpredictabble when it comes to the circumstances, and thus establishing such an exhaustive list would be impossible. Instead, the legislators have decided that any tax deductible cost must fit a certain set of characteristics. These are:
- that the cost is borne by the taxpayer and not another person;
- that the cost was incurred in order to achieve revenues, or maintain or secure new sources thereof;
- that the cost must not be on the list of expenses expressly stated not to be tax deductible.
Depreciation is one of the most important tax deductible costs. It only applies to intangible assets (buildings, machinery, vehicles, foreign investments in fixed assets such as licenses, know-how etc. The depreciation write-offs are generally made from the initial value of fixed assets, either monthly, at the end of every fiscal quarter or at the end of the tax year.
Lease payments are also tax deductible, and the terms of the lease agreement dictate the provisions of tax settlement.
Other allowable deductions from the tax base
With tha aim of reducing the tax, the taxpayer may also – aside from depreciation write-offs and lease payments – deduct from taxable income:
- donations made to the benefit of public organisations (10% of income at most),
- donations for the purposes of worship (the upper limit is set at 10 % of the income); if the taxpayer donates to both, the total deduction may not exceed 10 % of their income,
- in the banks loans waived in connection with restructuring (at most 20 % of such loans),
- donations to the Church for charity objectives (without any limitations),
- acquiring new technology (half of the expenditure incurred).
Additionally, any losses incurred in a given tax year may be recouped by settling it (by deducting it from the income earned) in the next five tax years. The most that can be settled in one year, however, is 50 % of the loss.
Other permissible tax deductions
The regulations on permissible tax deductions when it comes to CIT are much stricter than when it comes to personal income tax. That said, a taxpayer who has already settled the tax on dividends may reduce the tax due by the value already paid.
Recording and reporting obligations
In most cases the financial year – and tax year – may be taken to last 12 consecutive months. There are several caveats, the most important being that for legal persons it does not need to mean the calendar year; even the requirement of 12 consecutive months may be, in individual cases, slightly shortened or lenghtened.
Obligatory advance payments
There is no obligation for taxpayers to submit any tax returns during the tax year, but they are obliged to monthly (in some cases quarterly) advance payments. These are to be paid by the 20th day of the next moth (or quarter) after the tax settlement period.
Annual tax return
Up to the end of the third month of the next financial year, corporate taxpayers must submit an annual tax return for the previous fiscal year, on income earned or loss incurred. It is to be submitted on the CIT-8 form, with all the required attachments (balance sheet, profit and loss account and additional information).
Before the same date, the taxpayer – as per Article 27 of the Corporate Income Tax Act – must also pay the tax due, or the difference between the tax due from income shown in the annual tax return ans the amount os outstanding advances paid since the beginning of the fiscal year in question.
The financial statements which are to be attached to the CIT-8 form at a later date should be drawn up until the end of the third month of the new fiscal year and, after being approved by the competent authority within the company (board, general meeting – whichever is relevant) and forwarded to the tax authority within 10 days of the approval.
The taxpayer is also required to send these financial statements to the National Court Register within 6 months from the start of the new fiscal year at the latest.