We already know a lot about corporate tax based on Estonian solutions from the media and the government tax portal. The project itself is to be made available for consultation in June or early July. If it enters into force, it will be in force since 1 January 2021.
CIT (Corporate Income Tax) is paid by limited liability companies as well as, among others, cooperatives, foundations, joint stock companies and limited liability companies. This is an income-paying tax, currently operating at two rates: basic at 19% tax bases and preferential 9% for small taxpayers.
One of the problems of the Polish CIT, to which entrepreneurs and supporting organisations have been paying attention for years, is the so-called double taxation – that is, the tax is paid not only from the level of the company, but also by a partner who often pays you almost 40% Your income.
Estonian CIT has this problem to eliminate, as the tax will only be paid from the company's level, PIT from the dividend paid at the shareholder level will not take place.
As explained in the MF Communication, Estonian CIT is:
- no tax as long as the profit remains in the company;
- no tax and therefore no tax accounting, declarations and minimum administrative obligations;
- simplicity - the taxpayer does not have to calculate what is the tax expense of obtaining income, calculate depreciation deductions, apply minimum tax, or devote time and resources to tax optimization.
Who will benefit
Estonian CIT is addressed to:
- Small and medium-sized capital companies (limited liability and equity) whose income does not exceed 50,000,000 PLN. In Poland this criterion meets almost 97% all capital companies,
- companies in which only natural persons are shareholders. This means that it can be used by the vast majority of Polish CIT taxpayers (c. 200,000 companies), where the investor is close to the company and the structure of the company is transparent and simple.
The Estonian CIT will benefit companies:
- which do not hold any shares in other entities,
- who employ at least 3 employees - in addition to shareholders,
- whose passive revenue does not exceed operating income,
- which show investment outlays.
All these criteria must be met simultaneously.
Two paths of the Estonian system
The Ministry proposes two paths to use this solution. The first is the so-called Estonian CIT full – exclusively distributed by the company income. The second is intended to respond to a crisis that the economy is expected to overcome by increasing investment. The funds should be provided through special investment funds (accounts).
The taxpayer will be able to count the write-downs for such an investment account as revenue costs. If we look at Estonian CIT as a source of funds for the investment, it is worth noting that the company that enters the scheme will not be able to benefit from other tax preferences (e.g. income exemption from PSI or R & D relief).
According to the Ministry website, ‘in order to allow these preferences to be applied in the Estonian system, the objective of introducing this new tax model could not be achieved’.
Estonian CIT as a tool to combat the crisis
According to the law, Estonia must employ at least 3 employees (except shareholders themselves). Currently 44.2% Capital companies employ no one, and additional 14.5% Only one employee. Around 25% companies employ 3 And more employees.
The employment condition will be examined on an annual basis, so the company can benefit from the solution by committing to employing employees. However, if it does not, it will not be able to continue to tax on preferential terms.
This solution encourages increasing and maintaining employment, which is particularly important during a period of possible weakening of the labour market in a context of economic downturn.