Poland Sets Up Minimum Business Tax to Stop Profit Moving

As of January 1, 2024, Poland has introduced a minimum corporate income tax to tighten the tax system and prevent income shifting from Polish companies to jurisdictions with favorable tax regimes. A mandatory minimum tax applies for companies which record loss or have low profitability. 

Here are the key details:

1. Applicability:
   • The minimum tax applies to taxpayers who meet the following criteria:
     • Have their registered office or management in the territory of Poland.
     • Generate income, regardless of where it is earned.
     • Conduct business activity through a foreign permanent establishment located in Poland.
     • Have suffered a business loss in the relevant tax year or whose share of income in revenue did not exceed 2%.
2. Tax Rate:
   • The minimum tax rate is 10% of the tax base.
   • It is payable by the due date of the annual return (for 2024, by the end of March 2025).
3. Exemptions:
   • Certain groups of entities are exempt from the application of the minimum income tax regulations. These include:
     • Start-up businesses (up to 3 tax years from commencement).
     • Small taxpayers (annual turnover of no more than 2 million EUR).
     • Financial enterprises, mining companies, and municipal companies.
     • Taxpayers primarily providing health care services.
     • Entities in bankruptcy, liquidation, or under restructuring proceedings.
     • Shareholders or members of companies meeting specific criteria within a group structure.

To calculate the minimum income tax in Poland, you need to determine the tax base and then multiply it by 10%. The tax base is calculated based on the sum of three components: income from other sources, capital gains, and the value of income achieved by the taxpayer in the tax year.

In the classical method, the minimum tax base is the sum of three components.

1. an amount corresponding to 1.5% of the value of tax revenues from operating activities achieved in a given year (other than from capital schemes)
2. debt financing costs incurred for the benefit of related entities in the amount exceeding 30% of tax EBITDA
3. costs of purchasing certain services and intangible rights in the amount exceeding PLN 3,000,000 + 5% EBITDA

Adding part of the costs (above the limit referred to above) for the acquisition of:

• advisory services, market research, advertising services, management and control, data processing, insurance, guarantees and sureties and similar services;
• all types of fees and charges for the use or the right to use rights or values such as copyrights, licenses, know-how;
• transfer of the risk of debtor’s insolvency arising from loans other than those granted by banks and cooperative savings and credit unions, including liabilities arising from derivative financial instruments and benefits of a similar nature.

Taxpayers can also opt for a simplified method where the taxable amount is 3% of the value of tax revenues other than income from capital gains. This simplified method requires informing the tax office in the tax return. Taxpayers can deduct the minimum tax paid for a specific year from their income tax in subsequent years, up to 3 tax years following the year of payment.