Minimum income tax

2024 / 01 / 29

Starting 1 January 2024, after a two-year exemption period, CIT payers are obliged to adhere to the minimum income tax legislation. The obligation to pay the minimum income tax will apply to CIT payers who incur a loss on operating activities or whose profitability is below 2%. The regulation is to prevent aggressive tax optimization and in particular income transfers to related parties abroad. Generally, the minimum tax for 2024 needs to be shown in the annual return to be filed by the end of March 2025 and the tax should be paid by this date.

Entities obliged to pay the minimum tax

According to Art. 24ca of the Corporate Income Tax Act, the minimum tax applies to companies that are CIT payers and fiscal unities (tax capital groups) that incurred a loss from a source of income other than capital gains or for whose share of income in revenues from such sources did not exceed 2%.

Importantly, the minimum tax legislation provides for a specific way to calculate the loss and the share of income in revenues, where the following items are excluded:

lease fees and depreciation write-downs on fixed assets used under the finance lease;
20% of wage costs, social security contributions in the portion funded by the employer, social security allowances and payments to employee capital plans in the portion funded by the employer;
the excise duty, the tax on retail sales, the gambling tax, the fuel charge, the emission fee;
increased costs of purchase of electricity, heat or piped gas.

This means that CIT payers who incur a loss or whose profitability is below 2%, calculated according to the general rules, can avoid payment of the minimum tax if their profitability exceeds 2% after certain items are excluded from the calculation.

Additionally, the CIT regulations provide for a number of exempted entities. According to Art. 24ca (14) of the CIT Act the minimum tax will not be paid by:

taxpayers who start their business activity – for the year in which their activity was commenced and for subsequent two years;
small taxpayers;
taxpayers whose revenue in a given tax year was 30% lower than in the previous year;
taxpayers whose profitability in one of the last three tax years was higher than 2%.
taxpayers with a simple ownership structure, if their shareholders, stockholders or partners are natural persons only, and if the taxpayer does not hold more than 5% of shares in another company;
taxpayers whose revenues come primarily from provision of certain types of services (such as healthcare, operation of sea vessels or aircraft in international transport, or extraction of certain minerals);
taxpayers who are members of capital groups of which at least one company holds directly at least 75% of shares in another company;
municipal companies;
taxpayers placed in bankruptcy, liquidation or subject to restructuring;
taxpayers who are parties to an agreement for cooperation with the National Tax Administration.

Additionally, the minimum tax does not apply to entities taxed on a flat-tax basis on corporate income, i.e. the so-called Estonian CIT.

When we compare the above manner of calculation and the list of exclusions from the original provisions on minimum tax, it should be noted that the legislator resolved to liberalize their wording, and accordingly the minimum tax will apply to fewer taxpayers.

Importantly, based on provisions that suspend the minimum tax for those taxpayers whose tax year and calendar year do not overlap, and for whom the tax year started before 1 January 2024, the period of suspension lasts until the end of this tax year.

Amount of tax and taxable base

The minimum tax is 10% of the tax base which is established in one of two alternative ways. The taxpayer may opt for:

a simplified method in which the taxable base is an amount equal to 3 percent of the value of revenues in the tax year or
taxation of the sum total of 1.5 percent of the taxpayer’s revenues and the excess of costs of debt financing and costs of intangible services incurred for the benefit of related parties over the limits established individually for each taxpayer, determined according to the formulas indicated in the Act (30% of EBITDA for costs of debt financing and 5% of EBITDA + PLN 3 million for costs of intangible services).

Importantly, the base for taxation with the minimum tax is reduced by deductions made according to the general rules, for example by specific types of donations.

Tax payment

The minimum tax is paid on the date of filing the annual CIT-8 return, which is the end of the third month of the next tax year, i.e. the end of March for those taxpayers whose tax year is the same as the calendar year.

It needs emphasizing that the minimum tax paid for a given tax year reduces the amount of tax determined according to the general rules. The deduction can also be made over three successive tax years following the year in which the minimum tax was paid.

According to the latest news, the minimum tax regulations currently in force are subject to internal analyses at the Ministry of Finance, also in the context of the formula of their future applicability. This may mean that the provisions are amended or even repealed before the first settlement of the tax to be made (in principle) in the return for 2024 (i.e. in 2025).

If you would like to know more about the minimum tax or you need help to determine whether you are subject to the tax, or seek assistance in settlement of the tax, you are welcome to contact us. Andersen experts will assist you in the process of adapting to the solutions currently in force.

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