Applying a reduced corporate tax rate of 15%

According to the law of 5 September 2016 amending the Personal Income Tax Act and the Corporate Income Tax Act[1], was introduced from 1 January 2017 additional reduced tax rate 15% the tax base. However, according to the Act of 23 October 2018 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts[2], reduced tax rate 15% will be replaced from 1 January 2019 Rate in height 9%. What conditions must be met to benefit from preferential taxation?

Introduction A Catalogue of entities subject to corporate tax (hereinafter CIT) has been established by the law with 15 February 1992 on corporate income tax[3] (Further u.p.d.o.p.). Subject to Article 1(1) u.p.d.o.p. this law regulates tax on income tax of legal persons and capital companies in the organisation.

Moreover, in the light of the disposition Article 1(2)(3) The Act also applies to the taxation of organisational units not having legal personality, with the exception of companies not having legal personality, and, despite the exemption from the scope of taxation, taxation according to the Act also applies to:

limited partnership companies established in the territory of the Republic of Poland,
companies not having legal personality or management in another country, if they are treated as legal persons under the tax legislation of that other country and are subject to taxation in that country on all their income, regardless of where they are achieved.

In addition, according to Article 1a(1) u.p.d.o.p., taxable persons may also be groups of at least two Commercial law companies having legal personality which remain in capital unions, hereinafter referred to as ‘tax capital groups’ (hereinafter referred to as PGK), fulfil the conditions required by u.p.d.o.p. to be recognised as a tax capital group.

Tax preference

in form 15% CIT rates

Regulations of the amending law have brought into law since 1 January 2017 new solution, previously unknown u.p.d.o.p. In addition to the content maintained Article 19(1)(1) u.p.d.o.p. a basic income tax rate of 19% tax base, which to the end 2016 has been applied to all revenue (except for the specific forms of taxation indicated in the Article 21(22)(24a)(24b) an additional reduced tax rate of 15% the tax base.

However, it should be stressed in particular that the regulations of u.p.d.o.p. set out a list of the required terms and conditions, the maintenance of which constitutes the application of this rate of tax. Name, according to Article 19(1)(2) u.p.d.o.p., income tax is 15% the tax base for:

1) small taxpayers and
2) taxable persons starting in the tax year in which they started.

It should be noted that compliance with the above-mentioned corporate conditions, which determine the application of a reduced rate of tax, should be assessed in the context of the relevant regulations, including those which provide for the exclusion of a taxable person from being regarded as having fulfilled the required conditions.

The status of a small taxpayer as a qualification to apply the tax preferences

Since a specific tax preference, which results in a reduced income tax rate, can only be applied by taxable persons who comply with the specifically specified corporate conditions, it becomes crucial to determine whether there are conditions for the taxable person concerned to benefit from this solution. On first The plan implies the qualification of the taxpayer as a small taxpayer for corporate income tax purposes.

According to Article 4a(10) a small taxable person must be understood to mean a taxable person whose value of the sales income (including the amount of VAT due) did not exceed, in the previous tax year, the amount of PLN corresponding to the equivalent 1,200,000 EUR.

At the same time, this standard sets out a methodology to convert the indicated amount of the limit expressed in euro. This conversion is made at the average euro rate announced by the NBP to first the working day of October of the preceding tax year, rounded to 1,000 PLN.

Consequently, by establishing 2018 (e.g. for the tax year from

On 1 January 2018 to 31 December 2018) limit allowing the taxpayer to qualify as a small taxpayer within the meaning of Article 4a(10) The average euro exchange rate published at first October working day 2017 Daily 2 October 2017 was 4.3137 PLN for 1 EUR. Therefore, it must be stated that the income limit from the previous tax year, allowing the taxpayer to be regarded as a small taxpayer under the regulations of u.p.d.o.p., is in 2018 5,176,000 PLN (which results from the calculation of: 1,200,000 × 4.3137 – rounded to 1,000 PLN).

It should also be noted that, under the terms of the regulations of the u.p.d.o.p., the limit allowing a taxable person to be regarded as a small taxpayer covers sales revenue together with the VAT due. Moreover, when setting a limit allowing a taxable person to be regarded as a small taxable person in the area of u.p.d.o.p., it is necessary to refer to the sales revenue achieved in the preceding tax year, determined according to the content Article 8 u.p.d.o.p.

Starting taxpayer

activity in the tax year

It seems a little more difficult to make a taxable person a start-up who is entitled to apply 15% tax rates in the year of the start of this activity. It is necessary to draw attention to a catalogue of cases, provided for by the regulations of u.p.d.o.p., in which the taxpayer cannot apply taxation at that lower rate of tax.

Hence the application of the income tax rate of 15% the taxable amount for the taxable person starting business in the tax year requires the elimination of any of the cases identified in Article 19(1a) u.p.d.o.p.

This standard establishes that the taxable person who has been established:

1) as a result of the transformation, merger or division of taxable persons, except for the transformation of the company into another company, or
2) as a result of the transformation of an entrepreneur who is a natural person carrying out an economic activity in his own name or a company which is not a legal person, or

by legal persons, natural persons or entities not having legal personality which have contributed to the capital of the taxpayer previously held by them, an organised part of the undertaking or assets of that undertaking with a value which exceeds, in total, the equivalent in the amount of gold at least 10,000 EUR, converted and determined according to the rules indicated in Article 19(1a)(3) either
by legal persons, natural persons or entities not having legal personality, contributing in kind to the capital of the taxpayer, assets acquired by those persons or entities as a result of the liquidation of other taxable persons, if those persons or entities held shares in those other liquidated taxable persons

– does not apply the provision Article 19(1)

point 2 u.p.d.o.p. (a reduced rate of tax) in the tax year in which it started operations, and in the tax year immediately after.

Example

January 2018 the natural person conducting an economic activity has converted his business into a Polish limited liability company. The tax year of the new company resulting from the transformation will coincide with the calendar year, with first the tax year of that company will be, according to Article 8(2) u.p.d.o.p., continued to 31 December 2018.

In the present situation, although the newly created company actually starts business, it cannot apply a reduced tax rate as a taxable person starting business in a tax year. 15% tax bases in the tax year up to the end 2018 Moreover, in the light of the regulations in force in 2018 that company cannot apply this preferential tax rate also in its subsequent tax year, which runs from

On 1 January 2019 to 31 December 2019 The reduced rate of tax will only be applicable by that company in the tax year from 1 January 2020, where recognition will be necessary on the basis of sales revenue from the previous tax year (i.e. 2019), that the company fulfils the conditions to be regarded as a small taxpayer within the meaning of Article 4a(10) u.p.d.o.p.

Exemption for taxpayers converted before 1 January 2017

Analysis of compliance with the conditions resulting in the taxpayer applying the tax rate 15% the tax bases must also include – outside the scope of the regulations of u.p.d.o.p. – provisions of the amending act which are of a transitional nature.

The legislator provided for an additional specific restriction on the application of the reduced rate of income tax, established by the regulation Article 19(1)(2) u.p.d.o.p., introduced into the legal order 1 January 2017 This restriction is specific because it refers to taxable persons resulting from the indicated transformation processes undertaken before the date of entry into force of the regulation itself providing for a reduced rate of tax, and therefore before 1 January 2017

In the light Article 7 the amending act, taxable persons established between the date of entry into force of this provision and before the date of entry into force of the amending act to the other extent:

1) as a result of the transformation, merger or division of taxable persons, except for the transformation of the company into another company, or
2) as a result of the transformation of an entrepreneur who is a natural person carrying out an economic activity in his own name or a company which is not a legal person, or

by legal persons, natural persons or entities not having legal personality which have contributed to the capital of the taxpayer previously held by them, an organised part of the undertaking or assets of that undertaking with a value which exceeds, in total, the equivalent in the amount of gold at least 10,000 EUR, converted according to the rules indicated in Article 7(3) the amending act, or
by legal persons, natural persons or entities not having a legal personality, as in-kind contributions to the capital of the taxpayer, assets acquired by those persons or entities as a result of the liquidation of other taxable persons, if those persons or entities held shares in those other liquidated taxable persons

apply in the tax year starting after 31 December 2016 Article 19(1) u.p.d.o.p. in the version to date, and therefore in the version applicable to 31 January 2016

At this point, it should be noted that the exemption provided for in this provision for the application of a reduced rate of tax includes two the tax years of the taxpayer CIT, which was created on the basis indicated in Article 7(1-4) Amending Act.

Because regulation Article 7 that law refers to taxable persons established on the basis of the indicated transformation from the date of application Article 7 the amending law and before its entry into force, i.e. 1 January 2017, it must be stated that this regulation refers to operators arising from the specified processing period from

28 September 2016 to 31 December 2016

Consequently, in respect of such entities the exclusion of the possibility of applying the reduced rate of income tax referred to in Article 19(1)(2) U.p.d.o.p. includes:

1) first the tax year of the taxpayer, covering a period starting from 28 September 2016 to 1 January 2017, and ending in 2017 (as indicated in Article 8 amending act),
2) tax year starting after 31 December 2016 (as indicated in Article 7 Amending Act).

As a result, such taxpayers may apply a reduced tax rate of 15% Only in his own third tax year, and thus in the tax year starting after the end of that tax year, which started for the taxpayer after 31 December 2016 In that case, the application of a tax rate of 15% the tax base is only possible if the taxable person is considered a small taxable person this year.

Analyzing the envisaged restrictions on the application of the reduced rate of tax by the processors indicated in Article 19(1a) U.p.d.o.p. and Article 7 The amending law is worth paying attention to the objective of introducing these specific regulations.

As shown in the explanatory memorandum to the draft amending law[4] at the legislative stage, envisaged Article 19(1a) U.p.d.o.p. and Article 7 The law amending the restrictions is intended to eliminate existing entities from taking on artificial restructuring measures whose sole or dominant objective would be to achieve a tax advantage.

Tax year and tax rate 15%

When discussing the taxation of income generated by a corporate tax taxable person on the basis of a preferential tax rate, attention should also be paid to a particular issue relating to the matter of determining the tax year.

According to Article 8(1) tax year (subject to the specific regulations indicated in Article 8(2)(2a)(3)(6) u.p.d.o.p.

– applicable to, for example, taxable persons starting their business during the year or obliged to close accounts on the basis of separate provisions) is a calendar year, unless the taxpayer decides otherwise in the statutes either in the company contract or in another document duly regulating the system of other taxpayers and notify the competent head of the tax office, then the tax year becomes the subsequent period twelve calendar months.

Analysis Article 8(1) u.p.d.o.p., but also specific provisions Article 8(2)(2a)(3)(6) u.p.d.o.p., allows to conclude that in the area of corporate income tax there is quite a common situation in which the tax year is not the same as the calendar year.

Is it therefore possible to apply a preferential tax rate of 15%, provided Article 19(1)(2) by those taxpayers who 1 January 2017 (the date of entry into force of the regulations Article 19(1)(2) u.p.d.o.p.) were in the course of the current tax year, i.e. in which the tax year started before 1 January 2017 ended already in 2017?

In the light Article 8 Act amending corporate tax payers whose tax year is different from the calendar and started before 1 January 2017, and will end after 31 December 2016, applied the tax regulations adopted by them to the end of the tax year as they had been adopted.

Thus taxpayers whose tax year began in 2016, and finished in 2017, apply by the end of this year the income tax rate indicated in the content Article 19(1)(1) u.p.d.o.p. and therefore 19%.

Taxable persons fulfilling the required corporate conditions benefited from a preferential reduced tax rate only in respect of income generated in the following tax year, i.e. one which had already begun during the 2017, and ended in 2018

Tax groups excluded from the application of the reduced tax rate

By Sound Article 19(1b) u.p.d.o.p., no regulation shall apply to PGK Article 19(1)(2) u.p.d.o.p. This exemption is unconditional, meaning that PGK, qualified as corporate tax payers, cannot apply the reduced tax rate indicated in Article 19(1)(2) U.p.d.o.p., regardless of the possible fulfilment of conditions which allow other taxpayers to apply that tax preferences.

The taxpayer, PGK, has a special status. Namely in the light Article 1a(1) At least groups may also be taxpayers. two commercial law companies having legal personality which remain in capital unions, called tax capital groups.

Therefore, in order to qualify the group as corporate tax taxable persons and consequently exclude the application of a reduced tax rate, it is appropriate to indicate the conditions laid down in Article 1a u.p.d.o.p., allowing the capital union of capital companies to be considered as a capital group.

Changes in 2019

In the bill of 23 October 2018 Changes in the application of the reduced tax rate in the area of u.p.d.o.p. Reduced tax rate to date 15% is replaced by a tax rate of 9%. The scope of the reduced tax rate in the u.p.d.o.p. will indeed be changed.

According to the new sound Article 19(1)(2) the tax rate shall be 9% the tax base on income other than capital gains, in the case of taxable persons whose income generated in the tax year did not exceed the amount expressed in PLN corresponding to the equivalent 1,200,000 EUR.

The amounts expressed in euro shall be converted at the average euro rate announced by the National Bank of Poland (hereinafter the NBP) into first the working day of the tax year, rounded to 1,000 PLN.

Thus, the Law of 23 October 2018 Introduction to Article 19(1)(2) u.p.d.o.p. additional conditions for applying a reduced rate of tax, i.e.:

1) Admissibility of the application of this rate of tax by taxable persons whose revenue generated in the tax year did not exceed the amount expressed in PLN corresponding to the equivalent 1,200,000 EUR,
2) exemption from the application of a reduced rate of tax 9% for income from capital gains (these will always be taxed at the standard rate).

Note that according to the new Article 19(1d) u.p.d.o.p., the application of a reduced rate of tax will depend, as at present, on having a status as a small taxpayer (according to Article 4a(10) (u.p.d.o.p.), where this condition does not apply to the taxation of taxable persons starting their business, in the year of the start of that activity (subject to specific regulations excluding taxation at a reduced rate of taxable persons listed in Article 19(1a-1c) u.p.d.o.p.).

It must be stressed that the bill

on 23 October 2018 introduce additional categories of taxable persons for which the reduced rate of tax is not applicable, and in particular for:

a taxable person who has been established by legal persons, natural persons or entities not having legal personality, if, in the tax year in which the taxpayer was established and in the following year, he was transferred to him in respect of the capital previously held by an undertaking, an organized part of the undertaking or assets of that undertaking with a value greater than the total equivalent in the gold amount 10,000 EUR, converted by the average euro rate announced by the NBP to first the working day of October of the year preceding the tax year in which those assets were transferred, rounded to 1,000 PLN, the value of these components shall be calculated by applying the provisions accordingly. Article 14 u.p.d.o.p.5. In this case, the reduced rate of tax may not be applied in the tax year in which it started its activity and in the tax year immediately following it;
a split company;
the taxable person who made the contribution to another entity, including capital:

(a) an undertaking previously run by itself, an organised part of the undertaking or assets of that undertaking with a value exceeding the total equivalent in the amount of gold 10,000 EUR converted by the average euro rate announced by the NBP to first the working day of October of the year preceding the tax year in which those assets were transferred, rounded to 1,000 PLN, the value of these components shall be calculated by applying the provisions accordingly. Article 14 U.p.d.o.p., or

(b) the assets obtained by that taxable person as a result of the liquidation of other taxable persons, if that taxpayer held shares in those other liquidated taxable persons.

Pursuant to the Act of 23 October 2018 where indicated in points 2 and 3. the exemption from the application of the reduced rate of tax will apply to the tax year in which the division or contribution was made and the tax year immediately following that[6].