On 1 January 2024, regulations concerning the suspension of the minimum income tax were introduced as part of the Polish Deal expires. The biggest change introduced is the exemption of all entities from taxation with the minimum tax for the years 2022 and 2023. Changes will be applied from 1 January 2024.

With taxpayers whose tax year will not coincide with the calendar year and begin before 1 January 2024 and end after 31 December 2023, the exemption from taxation will be applied until the end of a said tax year.

The new application of minimum income tax

It is applied to all companies and tax capital groups, with few exceptions.

Entities excluded from this taxation are:

• financial companies
• taxpayers who just started their business (3 tax years from the commencement of the said business)
• taxpayers who have earned 30% less in revenue compared to the last year
• taxpayers placed in bankruptcy, subject to restructuring proceedings,
• taxpayers who are a party to the cooperation agreement,
• taxpayers who are so-called small taxpayers (taxpayers whose annual revenues do not exceed EUR 2 million),
• taxpayers who earned a share of income from a source of income other than capital gains in one of the three tax years immediately preceding the tax year for which the minimum income tax is paid, in the amount of at least 2%
• taxpayers whose shareholders or partners are only natural persons and if the taxpayer does not hold more than 5%:

a) shares in the capital of another company or all rights and obligations in a company which is not a legal person,

b) other property rights related to the right to receive a benefit as a founder or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature;

Determining the subject to minimum income tax

Almost every company and tax capital group should check every year whether it will be subject to the minimum tax. When determining the subject, the results on transactions of an entity are not taken into consideration if, the price of said transaction is determined on the basis of Art 24ca of the CIT Act.

In 2024 the verification will be conducted on the basis of whether the share of entity’s income in its revenue was less than 2% in a certain year or whether the entity incurred a loss for a certain tax year (it must be other than capital gains).

Costs that are recognized as tax-deductible cost in the tax year resulting from the acquisition, production or improvement of fixed assets are not taken into consideration when it comes to determining the application of minimum income tax. Payments specified in the lease agreement that are included in the tax year as tax-deductible costs are also not included in this. Same thing is with revenues and tax-deductible costs directly related to these revenues from the sale of receivables to an entity which is a financial institution whose core business is the provision of financial services consisting in the purchase of receivables from a creditor arising as a result of concluding a contract for the sale of goods or services between the creditor and the debtor. Increasement in tax-deductible costs from the purchase of electricity, heat or pipeline gas (year-on-year) and amounts of excise duty, retail sales tax, gaming tax, fuel surcharge and emission fee paid by the obliged entity are also not taken into consideration when it comes to determining the application of minimum income tax.

Determining the taxable base

The taxable base in the minimum tax is going to be consisting of:

• 1.5% of the company’s revenues (other than capital gains)
• the amount of debt financing costs incurred for the benefit of related entities exceeding the value of 30% of the taxpayer’s EBITDA
• the amount of costs of services or intangible rights incurred for the benefit of related entities – exceeding the value of PLN 3 million
• 5% of the EBITDA.

In 2024 taxpayer will have the ability of choosing a simplified method of determining a tax base constituting an amount corresponding to 3% of the value of revenues from a source of income other than capital gains earned by the taxpayer in the tax year. The taxpayer should inform about the chosen method in the return submitted for the tax year for which the taxpayer made such choice.

Reducing the tax base

Tax base can be reduced by the deduction of income from the tax base of the zone income in place of the deduction of income from the activity of the zone and revenues in the amount of excise duty included in the price of excise goods sold by the taxable person trading in those goods. Tax base can also be deducted by the value of deductions reducing the tax base in the tax year calculated in accordance with Article 18 of the CIT Act (the value of donations or B+R reliefs), as well as some new reliefs announced in the Polish Deal.

Most of the deductions that can be made by taxpayers of “classic” CIT are available to entities subjected to minimum tax.

There are no additional regulations concerning the minimum tax rate, so the determined tax base is multiplied by 10% as per usual. There are no changes to determine the amount of minimum income tax to be paid. Entities subjected to the minimum tax regulations will not be exempt from general CIT – they will still be obliged to settle income tax with the tax authorities. However, they can reduce the minimum tax by the value of the “classic” income tax. In addition, taxpayers will also be required to report in their tax return the tax base, its reductions, as well as the amount of the minimum income tax.

When deducting the minimum tax in subsequent years it is important to remember that it can only be made in the annual tax return for the next 3 tax years. Those 3 years have to be immediately after the year for which the taxpayer paid the minimum income tax.

Text based on: https://studio.pwc.pl/aktualnosci/komentarze/podatek-minimalny-praktyczny-przewodnik-polski-lad