Planned changes to income taxes in 2021
On 28 October 2020, the Polish Sejm voted on changes to tax law concerning, without limitation, the status of income tax payers assigned to limited partnerships and some registered partnerships, as well as implementation of the “Estonian CIT”, of which we informed in our earlier alerts:
Taxation of limited partnerships and registered partnerships (to a certain extent) with corporate income tax (CIT) is to take effect on 1 January 2021.
This means that if the financial year adopted by a limited partnership or a registered partnership before 1 January 2021 does not overlap with the calendar year, the partnership will be obliged to close its accounting books on 31 December 2020 and will become a CIT payer starting from 1 January 2021, even if this date does not mark the start of its standard financial year.
It also bears emphasizing that a limited partnership may take a decision to apply the new regulations from 1 May 2021. In this case, the limited partnership will become a corporate income tax payer as late as on 1 May 2021. In this case, if the last day of the financial year of a limited partnership falls in the period between 31 December 2020 and 31 March 2021, the partnership is entitled not to close its books as of this date and continue its financial year until 30 April 2021.
With respect to registered partnerships, the corporate income tax is to be imposed on income earned by the limited partner (“silent partner”) who is not disclosed in the National Court Register and whose liability is limited to the commendam sum. General partners, i.e. partners liable with all their assets, are to be entitled to deduct the CIT already paid by the partnership from their taxes.
For partnerships having the status of a small taxpayer, the tax rate will be 9% and the eligible limit of income will be raised from EUR 1.2 to 2 million.
An essential change consists of the obligation for taxable persons whose income exceeded EUR 50 million in a tax year to prepare a report on implementation of their tax strategy for the tax year and to communicate it to the public.
The report will cover quite a broad scope of data. Depending on the nature and type of business, as well as the size thereof, the following should be published:
- information concerning requests for individual tax rulings and general tax rulings, binding rate information and binding excise tax information
- information concerning compliance with the tax obligations in Poland, including the number of tax scheme notifications provided to the Head of the National Fiscal Administration (KAS) broken down into the taxes they apply to
- information about transactions with associated enterprises, to the value exceeding 5% of the balance sheet total
- description of processes and procedures concerning management of compliance with obligations resulting from tax regulations and ensuring compliance therewith, as well as voluntary forms of cooperation with KAS bodies
- information concerning settlements in countries which apply harmful tax competition
The above list is open, and taxable persons will be obliged to disclose other essential details if they affect their tax policies. The deadline for publication of such information is the end of the 12th month following the end of the tax year.
The Sejm also voted on the so-called Estonian CIT, which is likely to take effect on 1 January 2021. Under the scheme, companies which do not pay profit to their shareholders and which satisfy certain criteria set out in the law are entitled not to pay CIT. All proposed adjustments were rejected, and this form of settlements can be used by capital companies: limited liability companies or joint-stock companies, in which shareholders are natural persons and where the income does not exceed PLN 100 million, which is a change compared to the government draft in which the limit was half of this amount. Thus, limited partnerships liable to pay CIT from 1 January 2021 will not benefit from this form of taxation.
As a reminder, the additional requirement for benefiting from the Estonian CIT is that the company has no shares in other entities, employs at least 3 people apart from the shareholders, its passive income does not exceed income from operations and it incurs the required capital expenditure for investments.
The next step of the legislative process is for the proposed changes to be processed by the Senate, and we shall promptly inform you about the outcome.