From 1 January 2021 the limited liability company and the public limited liability company have the possibility to settle in the form of a lump sum on the income of the so-called Estonian CIT.
The above mentioned change is significant for entrepreneurs, as the idea of Estonian CIT is to postpone taxation of the company's income until the company's profits are paid, such a solution is intended to encourage the development of companies that would have additional cash under the above mentioned options.
Among the numerous changes in tax legislation proposed by the legislator in the framework of Polish Deal There have been some positive proposals for changes to the Estonian CIT.
Unfortunately, after a deeper analysis of the changes to the new rules it turns out that only a few entrepreneurs can benefit from the proposed solutions as the statutory catalogue of entities entitled to settle in the form of the Estonian CIT is quite limited.
The antidote for this condition is meant to be Polish Deal.
Estonian CIT in 2021
Since January 2021 only O.O. companies and public limited companies may benefit from the so-called Estonian CIT after additional conditions have been met.
After first the revenue of these companies may not exceed 100,000,000 PLN Each year, second the revenues must come in most of the operating activities, in addition to the above-mentioned companies being obliged to bear certain investment expenditure.
It is not the end of the requirements that companies wishing to benefit from this form of taxation must also employ a sufficient number of employees, and only natural persons can be shareholders or shareholders of companies. Moreover, these companies cannot be shareholders or shareholders in other companies.
In addition, the so-called Estonian CIT legislation did not provide for many benefits for entrepreneurs that could encourage this form of taxation.
The solution in the above form was not very interesting, was chosen by just less than 400 capital companies, few entities meet such stringent requirements.
Polish Deal and new Estonian CIT
Among the numerous changes in tax legislation proposed by the legislator in the framework of Polish Deal There have been some positive proposals for changes to the Estonian CIT. First of all, the assumptions of the amendments will extend the scope of the possibility of subjecting this form of taxation to new commercial law companies, i.e.
The official name of this form of taxation will therefore be changed from a ‘flat on the income of capital companies’ to a ‘flat on the income of companies’. In addition, other conditions for the application of the lump sum will be removed.
From 1 January 2022 limit will disappear 100,000,000 PLN For the revenues of the companies, there will also be no obligation to bear certain investment expenditures, but in the case of carrying out certain investment expenditures it will be possible to apply preferences in the form of lower income tax rates.
The draft law also provides for the flexibility of the deadlines for payment of the so-called preliminary adjustment, i.e. the tax on transitional differences between the tax result and the accounting result. However, where this form of taxation is maintained for a period above 4 years, then the obligation resulting from the so-called initial correction will expire.
If changes are made in the form foreseen in the draft Polish Deal companies will be able to choose the form of taxation of Estonian CIT if the following conditions are met: achieving most of the operating income, hiring at least 3 employees, the company does not hold shares or shares in the capital of other companies and does not draw up financial statements in accordance with International Accounting Standards (IAS).
For future entities benefiting from a lump sum on company income under Polish Deal in addition, favourable tax rates are provided for small taxpayers and start-ups, effective income tax rates i.e. the total CIT and PIT load levels will be 20%, without the need for additional conditions and for large taxpayers the rate will be 25%, and if additional conditions for carrying out the relevant investment expenditure are met, a rate of 20%.
If the solutions proposed by the Polish legislator within the framework of Polish Deal will enter into force in the form proposed in the draft law, the choice of taxation in the form of the so-called Estonian CIT can prove particularly beneficial for entrepreneurs operating one-man economic activities, and in the form of a company, where the sole partners are natural persons. Individual entrepreneurs will be able to limit their liability for obligations arising from their business activity, while at the same time taxing them with an effective tax rate 20%.