The year 2024 will be the first for which some corporate income tax (CIT) taxpayers reporting losses or very low income for a given tax year will need to settle what is known as the minimum tax. The new levy is intended primarily for larger CIT taxpayers, but in practice, every corporation taxed under CIT should analyze whether it falls into the group subject to the minimum tax.
Minimum tax – what is it and who does it concern?
The minimum tax is a new, parallel form of taxation alongside the so-called “classic” CIT. Therefore, being obliged to pay one tax does not exclude the obligation to bear the burden of the other. According to Art. 24ca of the CIT Act, the 10% minimum corporate income tax applies to companies based or managed in Poland, subject to tax on all their income, regardless of where it is earned, as well as tax capital groups which, in a given tax year, have incurred a loss from non-capital profits or have achieved an income share from non-capital profits (specified in the regulations) in income other than from capital profits of no more than 2%. So, the ratio of income to revenue is important. If it is less than 2%, the entrepreneur will pay the minimum tax. Generally, for example, limited liability companies, joint-stock companies, simple joint-stock companies, limited partnerships, joint-stock limited partnerships, and under certain conditions, general partnerships, whose partners are not exclusively natural persons or tax capital groups having tax residence in Poland, will be subject to the 10% minimum tax if they meet the conditions described in the regulations.
Possibility of applying a deduction
In practice, it is possible that both the “classic” CIT tax and the minimum tax obligation will arise for a CIT taxpayer in one year. However, this should not lead to double taxation, as the minimum tax amount due can be reduced by the “classic” CIT tax due. Importantly, if the taxpayer pays the minimum tax, they will be able to deduct it from the “classic” CIT in the declarations filed for the next 3 tax years.
Starting from when minimum tax?
The regulations concerning this tax came into force on 1st January 2022, but they were amended, and their application suspended until 31st December 2023. If there are no changes, they will have to be applied from 1st January 2024. This means that the first year for which the minimum tax will be due will be 2024. If the taxpayer’s tax year is different from the calendar year and begins before 1st January 2024 and ends after 31st December 2023, exemption from minimum tax is valid until the end of such a tax year (Art. 38ec par. 2 of the CIT Act).
Who is not covered by the minimum tax regulations?
Individual income tax (PIT) taxpayers will not pay the minimum tax, not only those taxed on a lump sum or according to a scale or linear tax and for this purpose conducting a tax revenue and expense ledger), also when they were obliged to keep full accounting books. Companies whose partners are exclusively PIT taxpayers will also not pay (a civil partnership, a general partnership, which is subject to PIT due to the nature of its shareholders, a partnership company). The minimum tax will generally not apply to entities not having the status of a company in the sense of the CIT Act and operating based on separate laws (for example, cooperatives, foundations, associations, or public health service units). Currently, small CIT taxpayers, whose annual gross sales revenue does not exceed 2 million euros, and taxpayers starting their activity – in the year of starting their activity and in the next two tax years, are also exempt from the minimum tax regulations.
Which firms are affected by the minimum tax?
The minimum tax will generally apply to two groups of entities: a) companies being CIT taxpayers and having their office or management in Poland, i.e., companies having legal personality, including European ones, capital companies in the organization, limited partnerships and joint-stock limited partnerships, and
Which industries may be subject to minimum tax regulations?
In practice, the minimum tax may weigh on companies in industries characterized by low profitability or periodic losses, e.g., from the HoReCa sector (i.e., the hotel and catering industry), transport, real estate, industry, processing, wholesale and retail trade, construction.
Will foreign entities pay the minimum tax?
The minimum tax may affect non-residents conducting business in Poland through a foreign establishment. The new form of taxation will include these entities to the extent that the revenues and losses are related to the activity of such an establishment. For foreign entrepreneurs, it will be crucial to examine the nature of the activity conducted in Poland. However, please remember that being in any of the described groups does not automatically mean the obligation to pay the minimum tax. It will be necessary to determine the tax result of such an entity.
How to calculate the minimum tax?
The rate of the minimum income tax is to be 10% of the tax base, which consists of several components. Simplified, the tax base consists of the sum of 1.5% of revenues from so-called operating activity (i.e., the value of revenues from sources other than from capital profits achieved by the taxpayer in the tax year) and “excessive” costs of debt financing and intangible services incurred on behalf of related entities. This refers to the costs of debt financing that have been incurred on behalf of related entities, exceeding the value of 30% of the taxable EBITDA and the amount of costs incurred on behalf of these entities for services or intangible rights exceeding the value of PLN 3 million plus 5% of taxable EBITDA.
The structure of the tax foresees many exclusions and deductions. As a result, the minimum tax will be calculated differently than for the classic CIT. This will result from the exclusion from the costs of generating revenues from fees for a lease agreement of fixed assets or from income and tax costs of the value of trade receivables sold to entities from the factoring industry, etc., or a separate way of calculating losses. For the purpose of calculating the loss and the share of income in revenues, it will not be possible to take into account the expenses for the acquisition of fixed assets and also revenues and costs of generating revenues directly or indirectly related to these revenues.
The taxpayer can also choose a simplified way of determining the tax base, which equates to 3% of the value of revenues from sources other than capital profits achieved in the tax year. However, about the choice of such simplification, the taxpayer must inform the competent tax authority in the tax return filed for the tax year of making this choice.
Deadline for minimum tax payment?
The structure of the minimum income tax does not foresee payment during the tax year of advances – although this issue has not been directly regulated in the regulations. However, since the minimum tax is assessed once a year, it is assumed that it should be paid by the deadline for filing the annual return for the given year.
If there are no changes in tax regulations, taxpayers will pay the minimum tax for the first time in 2025, when they have tax losses or do not exceed the 2% profitability threshold (share of revenues in revenues).
Summary
In practice, every CIT taxpayer will, therefore, be obliged to analyze whether they fall into the group of entities covered by the minimum tax. Unfortunately, the regulations governing this tax are complicated, which means their interpretation may cause a number of problems. Especially since the minimum tax is to be calculated differently than for the classical CIT.
If business is conducted in Poland in the form of a company or the entity has a foreign establishment in Poland subject to CIT and there is no possibility of using the exemptions mentioned in Art. 24c par. 14 of the CIT Act, an annual verification of the tax result will be necessary. This result will have to be calculated on the basis different from the “classic” CIT. It may be that the company will show a loss for the purposes of settling the “classic” CIT, while considering the above-mentioned exclusions it will not incur a loss in the sense of the minimum tax regulations and will not ultimately pay the new tax. However, if this does not happen, it will be necessary to familiarize yourself with the rules for calculating the minimum tax.
The minimum tax regulations apply from 1st January 2024. Currently, there are no announcements that obligations related to the minimum tax will be modified or softened once again.
In understanding who and when will pay the minimum tax, as well as the practical aspects of applying these new regulations, it is worth using the help of a tax and legal office expert, an accounting office, or an accountant. As mentioned above, the CIT Act provides for a series of exemptions from the minimum tax, even for entrepreneurs generating at least 30% lower revenues than in the previous year, proceedings in bankruptcy, liquidation or undergoing restructuring proceedings or being party to a cooperation agreement as referred to in Art. 20s § 1 of the Tax Ordinance.
Author: Legal Advisor Robert Nogacki, Managing Partner, Skarbiec Law Firm, specializing in legal, tax, and strategic advice for entrepreneurs
