Corporate return filing date: Three months after the end of the tax year. No extension is possible.

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1 Source: Global Tax Guide > Europe > Poland Poland Dr. Janusz Fiszer, Partner at GESSEL Attorneys at Law, Associate Professor Warsaw University School of Management, Warsaw Malgorzata Sajkiewicz, Senior Associate, Head of German Desk Attorney Wierzbowski Eversheds, Warsaw Last reviewed / updated January 30, Key facts 1.1. Main tax rates and filing dates Corporations Top corporate tax rate: 19 percent. Corporate return filing date: Three months after the end of the tax year. No extension is possible. Schedule for tax payments or deposits: Deposits of estimated tax are not required during the year. However, the taxpayer needs to make advanced tax payments to the tax office during the year. There is also no internal system of withholding business payments except for dividend payments, royalties and interest. State, provincial, or local top corporate rate: There are no corporate tax rates applied at the subnational level. State, provincial, or local filing date: There are no corporate taxes applied at the subnational level Individuals Top personal tax rate: 32 percent. Personal return filing date: April 30. Schedule for tax payments or deposits: Deposits of estimated tax are not required during the year. However, the taxpayer needs to make advanced tax payments to the tax office during the year. State or provincial top individual rate: There are no individual tax rates applied at the subnational level. State or provincial individual filing date: There are no individual tax rates applied at the subnational level VAT 1

2 VAT standards rate: 23 percent. VAT filing date: VAT settlement is on a monthly basis up to the 25th of the month following the month in which the tax obligation arose. Extension is not possible but taxpayers, other than those using the cash-basis settlement method, may submit tax returns quarterly (subject to further conditions) Population and GDP Population: 38 million (World Bank, 2015). GDP: US$ billion (World Bank, 2015) Currency In Poland, the currency is the Polish zloty (PLN). A free floating currency, the US$-PLN approximate exchange rate, as of January 30, 2017, is US$1 = PLN Membership of economic groups Poland is a member of the EU, OECD, WTO, IFC, World Bank, European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) Major industries Major industries in Poland are manufacturing, agriculture, automotive, construction, IT Website of tax/finance authority In Poland, the following tax or finance authority websites apply: Ministry of Finance National Bank of Poland Polish Information and Foreign Investment Agency Repatriation restrictions There are no repatriation restrictions in Poland. 2. Introduction Corporate and personal income taxes are imposed at the national level only. Resident corporations and individuals are taxed on their worldwide income. Non-resident corporations and individuals are generally taxed on Poland-sourced income. Poland taxes the corporate income of legal persons at a standard rate. As of 2017, a preferential rate 2

3 apples to small taxpayers; i.e., entities with sales revenues (including the VAT amount) that did not exceed a threshold in the preceding tax year. Newly-established corporations are also able to enjoy the preferential tax rate, however restrictions apply to entities established as a result of certain restructuring measures. CIT is calculated based on the surplus of gross revenue over tax deductible costs, whereas individual income tax is calculated on gross income derived from various sources (employment, business activity etc.). Polish residents are subject to personal income tax (PIT) on their worldwide income on progressive tax scale. Individuals engaged in business activity may apply for a flat percent tax rate in compliance with the Corporate Income Tax Law provisions regulating lump-sum taxation. VAT is a tax on goods and services, which is the main source of income of Poland's state budget. The value added tax (VAT) regime is national with the default tax rate in compliance with the EU VAT system based on Council Directive 2006/112/EC of November 28, 2006 on VAT system. 3. Recent developments The following recent developments apply in Poland: As of January 1, 2017 the following entered into force: amendments to the CIT Law and the PIT Law; changes to transfer pricing documentation requirements; and changes to the Polish VAT system. Key developments are incorporated into the text. With effect from September 1, 2016, a retail sales tax was imposed on sellers of goods to consumers, if their monthly sales revenue exceeds a threshold of PLN17 million. On September 19, 2016, the European Commission issued an injunction, requiring Poland to suspend the application of the tax while the Commission investigates whether the tax's progressive rates, based on turnover, breach EU state aid rules by conferring a selective advantage on companies with low turnover. On September 20, 2016, the Polish government announced that the tax would accordingly be suspended. On October 19, 2016, a regulation was gazetted, suspending the collection of the retail sales tax on income earned from September 1, 2016 to December 31, On 22 December 2016 the act stipulating that retail tax regime will apply to revenue earned after 31 December 2017 came into force. 4. Corporate taxes 4.1. General outline Residence, taxable status, entity characterisation Residence A corporation is considered resident when it has its registered office (seat) or management within the territory of Poland. It is not explained in the CIT Law what identifies residence-by-management, but it is commonly accepted among tax authorities and tax practitioners that the place of management is a place (town) where the managing body of the corporation resides, i.e., the members of the managing body meet, adopt resolutions and conduct other activities to which they are authorised or obliged as the managing body of the corporation Taxable status Polish corporate income tax covers registered corporations (i.e., joint stock companies and limited liability companies) and tax capital groups as well as other entities in the process of incorporation (spolki w 3

4 organizacji) with a legal personality to which an act of law grants the ability to acquire rights and assume obligations (i.e., a housing cooperative), except for registered partnerships. In principle, registered partnerships that have a registered office or management in Poland are tax-transparent, i.e., they are pass-through entities whose income is taxable to their owners. However, effective January 1, 2014, registered partnerships being joint-stock partnerships (spolki komandytowo-akcyjne) are treated as taxpayers for CIT purposes Entity characterisation Entities doing business in Poland, which have a registered office and management located outside the territory of Poland and which operate locally as legal persons are also to subject to tax liability in Poland. This rule also applies to partnerships that have their registered office or management in another state, where, under the tax law regulations of this state, they are treated as legal persons and are subject to taxation on the entirety of their income irrespective of the place where it is earned Corporate tax base Resident corporations In Poland, resident corporations are subject to corporate income tax (CIT) from all sources of income, subject to numerous exceptions. Income tax is imposed on all kinds of income, regardless of the source of revenue from which the income was derived. However, a few exceptions apply including the separate taxation of: dividends and other profits from legal persons, interest, royalties and revenue from intangible services earned by non-resident corporations Non-resident corporations The tax base of non-resident corporations in Poland is territorial. In other words, corporations are subject to tax liability only with respect to income earned within Poland. The tax base includes business income and income from capital gains, whereas some other kinds of income (e.g., income from dividends, royalties, interest and the performance of intangible services) are taxed separately and are subject to withholding tax in Poland. Income earned through a registered office or permanent establishment in Poland includes income from: Activities of all kinds carried out in Poland; Immovable property located in Poland and including income from the sale of some or all of a company's immovable property; As of January 1, 2017, securities and derivative financial instruments that are not publically traded in Poland on the regulated stock exchange market as well as income from the sale of the securities or instruments, or the implementation of the rights arising from the securities or instruments; As of January 1, 2017 the alienation of shares in certain types of companies if at least 50 percent of the assets of the company constitute Polish real estate or the rights to real estate in Poland; As of January 1, 2017 income from service contracts entered into by individuals, legal persons or disregarded entities that have a place of business or residence in Poland regardless of the place that the services are contracted or the place where the services are performed. If a double tax treaty applies to a non-resident corporation, Poland can tax a non-resident's business 4

5 income (business profits) to the extent that the income is attributable to the non-resident's permanent establishment ( PE ) located in Poland. Poland follows the OECD guidelines as to the degree of presence/activity by a non-resident corporation, which constitutes a PE. Internet use, download, and cloud computing there is no specific position in the law on PE with respect to providing cloud computing, storage or other cloud services or telephone presence. However, it is sometimes raised by the tax authorities that a PE could exist if a non-resident seller keeps internet website and cloud computing servers or computer equipment in Poland. Servers there is no specific law in Poland on this subject. Telephone presence there is no specific law in Poland on this subject. Commissionaire sales commissionaire structures are investigated by the tax authorities and need to be very carefully structured in order not to create a PE risk in Poland Other business entities Non-corporate business entities Non-resident owners can also use non-corporate business entities in Poland. One of the entities commonly used is a partnership Tax status of non-corporate business entities Partnerships, except for joint-stock partnerships, are tax transparent or pass-through entities under Polish corporate law. This means that a partnership is not subject to tax as a business entity because all the cost and income generated by the partnership is attributable to the partners who are liable to the tax of the partnership business. As of January 1, 2017, a company without legal personality that has its registered office or headquarters in another country is treated as a company subject to the Polish CIT if, in accordance with the provisions of tax law of that other country, the company is treated as a legal entity and is subject to the State tax on all the company's income, regardless of where the income is sourced Permanent establishments Domestic law definition The definition of PE provided for in the Polish tax law generally follows the OECD definition. However, the definition does not mention any preparatory or auxiliary services which are excluded from the PE definition. Consequently, under the Polish law, if a business is engaged only in providing preparatory or auxiliary services, such activity may suffice to constitute a PE in Poland. Poland follows the OECD Model, except for provisions related to taxation of royalties, which are based on the United Nations (UN) Model on Double Taxation. Under the OECD Model, the following concepts are used to determine a PE: Fixed place of business concept; Dependent agent concept; Construction PE concept. Under Polish CIT law, the following are understood to be a PE: A permanent place of business through which a non-polish tax resident conducts its business activities, 5

6 in whole or in part, within the territory of Poland; in particular, a branch, agency, office, factory, workshop, or place of extraction of natural resources. A construction site, construction, assembly, or installation works carried on within the territory of Poland by a non-polish tax resident. A person who, on behalf and for the benefit of a non-polish tax resident, operates in Poland, if such person holds and exercises a power of attorney to enter into agreements on one's behalf Treaty definition Editor's note: The OECD's BEPS Action 7 relates to preventing the artificial avoidance of permanent establishment status. Action 15 relates to developing a multilateral instrument to modify bilateral tax treaties. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. Poland generally follows the OECD treaty definition of PE. Poland does not apply a force of attraction concept to PE Services permanent establishment Editor's note: The OECD's BEPS Action 7 relates to preventing the artificial avoidance of permanent establishment status. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. In the domestic PE definition, Poland does not provide for a services permanent establishment concept. The services permanent establishment concept is generally not applicable in treaties concluded by Poland Permanent establishment by customer downloads, website access or other factors Editor's note: The OECD's BEPS Action 1 relates to addressing the challenges of the digital economy. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. Currently, there is no applicable law in Poland on this subject regarding customer downloads or website access that may lead to the creation of a permanent establishment Cloud services Editor's note: The OECD's BEPS Action 1 relates to addressing the challenges of the digital economy. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. 6

7 There is no specific law on PE with respect to providing cloud computing, storage or other cloud services or telephone presence in Poland. However, tax authorities have raised concerns that a PE could occur if a non-resident seller corporation installs applications on server computers, stores data on cloud servers or keeps internet cloud services computer equipment in Poland Taxable year Default taxable year In principle, the taxable year is the 12-month calendar year, unless or otherwise stipulated in the corporation's articles of association or other document similarly regulating the legal framework of operation of the taxpayer; and the taxpayer notifies the head of the tax office within 30 days, from the date when the activity of the taxpayer commenced or from the date of the last taxable year end. Should the adopted tax year be changed, the first tax year following the change is deemed as the period from the first month following the end of the previous tax year, to the end of the newly adopted tax year. This period may not be shorter than 12 or longer than 23 subsequent calendar months. Where separate regulations impose an obligation to close the books of account (prepare a balance sheet) prior to the end of the tax year adopted by the taxpayer, the tax year is deemed to be the period from the first day of the month following the end of the previous tax year, to the day of closing the books of account. In this case, the next tax year shall be deemed as the period from the opening of the books of account to the end of the tax year adopted by the taxpayer Reference year for computation of tax In a given taxable year, taxpayers are subject to tax on income earned in that the prior year. Thus, returns filed, e.g., in 2017 with regard to the taxpayer's liability for the 2016 tax year, will report income from 2016 and calculate tax on that basis Computing taxable income General In Poland, taxable income amounts to total revenue over deductible costs in a taxable year. As a general rule, all expenses incurred are deductible to determine taxable income. Some expenses are expressly or specifically excluded in the CIT Law, and are not treated as deductible cost or are deferred for tax purposes. There are over 60 exceptions, including investments in fixed or intangible assets (capital expenditure), i.e., expenses on the acquisition of land or the right of perpetual usufruct to land, acquisition or cost of fixed assets and intangible assets other than land and perpetual usufruct of land, improvements of fixed assets. The exceptions are not tax-deductible costs but instead the acquired assets can be depreciated for tax purposes. Once the above assets are sold, a taxpayer can include the net value of depreciation as tax-deductible costs. Accounts prepared in accordance with Polish accounting standards are the basic source of information for determining taxable income. In practice, taxable income is arrived at by adjusting accounting results for tax purposes Exempt income In general, there are two kinds of corporate income exemptions in Poland. The first exemption pertains to 7

8 certain entities that are exempt from income tax on total income generated from Polish sources. Those entities include inter alia: Open-ended investment funds and specialized open-ended investment funds (if rules and limitations drawn-up for closed-ended investment funds do not apply) operating under the Investment Funds Act of May 27, Undertakings for collective investments with registered office in a European Union member state other than Poland or in another state of the European Economic Area ( EEA ), that meet all of the following conditions: They are subject to income tax on the entirety of their income in the state where their registered office is located, regardless of where it is earned; Their operation consists solely of collective investment funds, gathered through public and non-public offerings in securities, money market instruments and other property rights; They conduct business activity on the basis of a licence granted by relevant financial supervisory authorities of the state where their registered office is located; Their operation is supervised by relevant authorities of the state where their registered office is located; They have a depositary, that stores the assets of these undertakings; They are not operating in the form of closed collective investment undertakings, or collective investment institutions of open type operating on the basis of principles and investment restrictions for institutions of collective investment of the closed type; They are not collective investment undertakings whose participation units are not offered in a public offering, admitted to trading on a regulated market or introduced to the alternative trading system, and can be purchased by individuals only if they make a one-time purchase of participation units of the value not less than EUR40,000. Pension funds established under the Polish regulations on the organisation and functioning of pension funds; Taxpayers with their registered office in a European Union member state other Poland or in another state of the European Economic Area, operating a pension scheme in respect of income related to accumulating savings for purposes of providing pensions, that meet all of the following conditions: They are subject to income tax, in the state where their registered office is located, on the entirety of their income regardless of where it is earned; They conduct activity on the basis of a licence granted by relevant authorities of the state where their registered office is located; Their operation is supervised by relevant authorities of the state where their registered office is located; They have a depositary who maintains a register of assets of these taxpayers; Their operation consists solely of accumulating and investing funds, designated to be paid out to participants of a pension scheme after they have reached pension age. Exemptions concerning foreign investment funds and foreign pension funds apply only on condition that 8

9 legal grounds exist for the tax authority to receive tax information from a tax authority in the state where the taxpayer has its registered office. The second group of exemptions pertains to exemptions related to certain sources of revenue and includes: Income from sale, in whole or in part, of immovable property being part of an agricultural farm; if the sale takes place after five years from the end of the calendar year in the course of which the acquisition of the entire or part of the property being sold took place. Income earned beyond the territory of Poland by residents, where it is so stipulated by an international agreement to which Poland is party. Income of public benefit organisations, as referred to in the Polish regulations on public benefit and volunteer activity, in the part designated to statutory activity, with the exclusion of business activity. Grants, subsidies and other gratuitous benefits received in order to cover costs or as costs' refunds if the costs refer to fixed assets. Subject to further conditions, income earned from business activity conducted within the area of a special economic zone on the basis of an administrative permit, discussed in Section Funds received, by a participant in a project, as aid granted within the framework of a program financed with the participation of means of the European Union. Revenues of closed-ended investment funds operating under the Investment Funds Act of May 27, 2004 are CIT-exempted, but certain types of revenues are subject to taxation including income from: - Participation in Polish and foreign entities without legal personality, they are not classified as a legal persons and are not subject to taxation on revenues in the country of their residence and management; - Interest on loans granted by closed-ended investment funds to the above mentioned Polish and foreign entities without legal personality and interest on other liabilities towards closed-ended investment funds; - Interest on capital shares in the above mentioned entities; - Donations and other free-of-charge or partially free-of-charge benefits granted by the above mentioned entities; - Interest (discount) on securities issued by such entities; - The sale of securities issued by the above mentioned entities or their shares. The above taxation rules of closed-ended investment funds also apply to specialized open-ended investment funds and foreign UCIs given that conditions listed in the CIT Law are fulfilled Inventory valuation and inventory flow Inventory is valued at its historic cost price or market value. The cost of inventory may be calculated at a standard cost, at a weighted average cost, or on the LIFO or FIFO basis, as long as the method selected is used consistently Depreciation or capital allowances 9

10 The customary method of depreciation is the straight line method. As far as real estate, machinery and equipment is concerned, in certain situations, depreciation according to the depreciated balance method may be requested. The depreciation rates for selected fixed assets are as follows: Industrial buildings: 2.5 percent per annum; General machinery: 10 percent per annum; Computers: 30 percent per annum; and Road vehicles: 20 percent per annum. In numerous cases, an accelerated depreciation mechanism is available. For example, used road vehicles (including passenger cars) can be depreciated at a 40 percent annual rate. The CIT Law provides for favourable depreciation rules related to intangible assets. Generally, the depreciation rate for such assets is 20 percent per annum. However, there are very important exceptions where the applicable rate is much higher: Copyrights: 50 percent per annum; Software licenses: 50 percent per annum; and Research and development expenditure: 100 percent per annum Reserves In general, reserves are not permitted as deductions for tax purposes, except in the banking business, the insurance industry and the private pensions industry. Exceptions include: In the case of banks the general risk reserve created according to the Polish Banking Law of August 29, In the case of insurers technical and insurance reserves up to the amount constituting the increase in the amount of such reserves as at the end of the tax year compared to the amount at the beginning of the year. In the case of private pension providers amounts conveyed to the reserve account of an open-ended pension fund. In principle, reserves created against bad debts, i.e., receivables, whose status as uncollectable has been demonstrated as beyond doubt, are not tax-deductible, with the exception of such reserves being created: In the organisational units entitled to grant loans under separate acts regulating the terms of their operation against loans fallen due, yet uncollectable and loans qualified as lost, granted to commercial entities undergoing a restructuring program. Against receivables fallen due, yet uncollectable, due to guarantees (sureties) granted by a bank, after January 1, 1997, regarding repayment of loans. Against receivables, qualified as lost, due to guarantees (sureties) granted by a bank, after January 1, 1997, to commercial entities undergoing a restructuring program, regarding repayment of loans. Against 25 percent of the amount of loans qualified as doubtful, and 25 percent of receivables, qualified 10

11 as doubtful, due to guarantees (sureties) granted by a bank, after January 1, 1997, regarding repayment of loans. 50 percent of the amount of loans qualified as doubtful and 50 percent of receivables, qualified as doubtful, due to guarantees (sureties) granted by a bank to commercial entities undergoing a restructuring program, regarding repayment of loans Special allowances The tax base may be reduced by donations for public benefit purposes and for religious purposes; the deduction in total may not exceed 10 percent of income Special provisions or limits applicable to foreign companies Editor's note: The OECD's BEPS Action 4 is concerned with limiting base erosion involving interest deductions and other financial payments. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. There are no special provisions or limits applicable to foreign companies' business Intercompany dividends Editor's note: The OECD's BEPS Action 2 relates to neutralising the effects of hybrid mismatch arrangements. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. In general, dividends paid by one resident company to another resident company are excluded from the overall income and are subject to 19 percent withholding tax, which is withheld and remitted to the tax office by the payor of dividend (the same mechanism applies to other revenues from participation in profits of legal persons). In general, dividends sourced abroad are treated as regular income and taxed at the standard CIT rate. However, dividends received by a resident company from qualifying subsidiaries located in Poland, in the EU, EEA or Switzerland are CIT-exempt, provided that the resident holds 10 percent of the subsidiary's share capital for at least two years; in the case of a Swiss subsidiary the minimum shareholding stake is increased to 25 percent. As of January 1, 2015, the participation exemption regime is not applicable to a resident company receiving dividends that give rise to a deduction from the income (or other decrease in the taxable base or tax) of the paying subsidiary. If a foreign subsidiary is not based in the EU/EEA, dividends sourced abroad are treated as regular income and taxed at the standard CIT rate. Income tax paid on such income in other countries can be credited proportionately against Polish CIT liabilities. Furthermore, an applicable double tax treaty can provide other methods of double taxation avoidance. With respect to dividends from foreign sources, the CIT Law also provides for an underlying tax credit or indirect tax credit, which is related to the corporate income tax paid by a foreign subsidiary under a foreign jurisdiction. To apply the underlying tax credit, the 11

12 Polish recipient must hold at least 75 percent of the capital in the company paying dividends and a double tax treaty between Poland and the subsidiary's country of residence must be in force. The underlying tax credit does not apply to EU/EEA countries, which are subject to more favorable treatment as described above Special tax regimes Economic zones A special economic zone ( SEZ ) is a place that is subject to special treatment and tax exemptions where an investor can establish business on a specially prepared site and operate it without paying income tax. There are 14 SEZs in Poland. The income tax exemption refers solely to the performance of the business activity within a SEZ under an administrative permit. An exemption from income tax granted in an SEZ is recognised as regional state aid. The maximum income tax exemption is related to the value of state aid available to an individual investor for a particular investment project. This value depends on the size of the investing entity (small, medium-sized or large according to the EU Commission Recommendation of May 6, 2003), the value of the investment (expenditure for purchase of certain tangible assets, or two years' labour costs or the combination of both) and the voivodship (province) in which a zone in question is located. The value of state aid is calculated as follows: For large enterprises from 30 to 50 percent of eligible costs; For mid-sized enterprises from 40 to 60 percent of eligible costs; For small enterprises from 50 to 70 percent of eligible costs; Maximum percentage of eligible costs in the case of a large investment projects is effectively less than 50 percent of eligible costs (most important requirement for large investment projects: costs qualifying for the regional aid exceed EUR50 million for the investment within three years). Other conditions to be met to obtain the right to income tax exemption are: The minimum amount of investment costs to qualify for the tax exemption must equal to a minimum of EUR100,000. The minimum share of investor's own resources must equal to a minimum of 25 percent of the total eligible investment costs. Own funds of an economic entity mean funds that have not been obtained within the state aid granted to the investor. The business activity based on the investment in the region must be continued for a minimum of five years following the end of the whole investment (three years in the case of small and medium enterprises). In the case of the tax exemption based partly or wholly on costs of a new investment retaining the ownership title to the property elements connected with the investment expenditure for a period of five years following their entry in the fixed and intangible assets register within the meaning of income tax regulations (three years in the case of small and medium enterprises); however the replacement of outdated installations of equipment due to the speed of technological development is allowed. In the case of the tax exemption based partly or wholly on labour costs each workplace created in connection with the implementation of a new investment project must be maintained for a minimum of five years starting from their creation (three years in the case of small and medium enterprises). 12

13 The exemption is available until the full amount of the investor's state aid due is used up, no later than the SEZ expiry date. The expiry date for all SEZs in Poland is December 31, After the state aid is used up, the investor is obliged to pay tax on the basis of universally binding rules specified by the provisions of Polish tax law. Also, a local authority/municipality (gmina) may grant real estate tax exemptions on the basis of a resolution of the council of the local authority for individual investors that plan to start their operations within the territory of a SEZ, which is governed by the local authority. The real estate tax exemption is applicable to the owner of the property, building or building structure and is also classified as a form of a regional aid. The real estate tax exemption may be combined with the income tax exemption within a SEZ International finance or holding companies Editor's note: The OECD's BEPS Action 5 relates to countering harmful tax practices (including certain preferential IP regimes) more effectively, taking into account transparency and substance. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. In Poland, there is no special regime for international holding or finance companies Research and development companies and activities Editor's note: The OECD's BEPS Action 5 relates to countering harmful tax practices (including certain preferential IP regimes) more effectively, taking into account transparency and substance. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. In general, in Poland companies are permitted to deduct research and development expenses. As of January 1, 2016, in addition, a company carrying out research and development activity is entitled to deduct qualified expenditures from its taxable income up to the following limits: 50 percent (30 percent before 2017) of salaries (and related social security costs), paid to employees involved in research and development activity (thus, 150 percent of these salary costs are deductible (100 percent plus the 50 percent)); and 30 percent (10 percent before 2017) of other listed expenditures on research and development activities in the case of large companies, and 20 percent for small and medium enterprises (thus 130 percent of the expenses for large companies and 120 percent for small and medium enterprises). As of January 1, 2017, micro, small or medium companies are permitted to deduct the following expenses for the cost of obtaining and maintaining a patent, protecting the right to a utility model, or the registration of industrial design: 1. Preparation of application documentation and for notification to the Polish Patent Office or appropriate external body, including the cost of the required translation into a foreign language; 2. Conduct of proceedings by the Polish Patent Office or the appropriate foreign authority incurred from the date of the notification to those authorities, in particular the official fees and costs of legal 13

14 representation and litigation; 3. Refutation of the allegations of non-compliance required to obtain a patent, protection right to a utility model or a right in industrial design registration in the proceedings on the application, and after its completion, in particular the costs of legal representation and litigation, both in the Polish Patent Office, as well as relevant international body; 4. Renewal fees, translation fees and other necessary steps to grant or maintain the validity of the patent, utility model protection and the rights of the industrial design registration, and in particular, the costs of validation of a European patent. In addition, a company's shares received in exchange for the transferred intellectual property are not taxable. This incentive was introduced for 2016 and made permanent as of As of January 1, 2017, Poland has the following innovation incentives: 1) Costs for R& D activities are deductible over a six-year period (3 years before 2017). This allows taxpayers that incur R& D expenses in loss years or low-profit years to take the deduction in a later year. This is an alternative to the cash reimbursement in (2) below. 2) Reimbursement of cash for start-ups in the first two years of operation A start-up that incurs R& D expenses, but does not have the profit necessary to use the deduction may be eligible to receive a cash reimbursement of the unused amount of the deduction. This is an alternative to deducting the cost over the six-year period in (1) above. The extended deduction period and the cash reimbursements do not apply to start-ups that have been formed: 1. As a result of the transformation, merger or division of taxpayers; or 2. As a result of the transformation of an entrepreneur that is a natural person engaged in business in its own name business or company that is not a legal person; or 3. By legal persons, individuals or entities without legal personality, which contributed to the capital of the taxpayer previously conducted their business, part of an undertaking or assets of the company with a value in excess of a total PLN equivalent of at least 10,000 euros converted at the average euro exchange rate published by Polish National Bank on the first working day of October of the year preceding the fiscal year, which brought these assets, rounded up to 1,000 zł, the value of those components is calculated using the appropriate art. 14 or 4. By legal persons, individuals or entities without legal personality for: contributions in kind to the capital of the taxpayer, or as a result of certain liquidations of other taxpayers Other special regimes In Poland, there are no other special regimes Double tax protection Editor's note: The OECD's BEPS Action 6 relates to preventing the grant of treaty benefits in inappropriate circumstances. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. 14

15 Income derived by a resident corporation from sources located in a foreign country is protected from double taxation through relevant provisions of a double tax treaty between Poland and the foreign country. Poland is a party to over 80 such treaties. Each double tax treaty usually prescribes more than one method of avoidance of double taxation to be applied with respect to taxes on income. Two methods are commonly used in double tax treaties concluded by Poland the exemption with progression method and the proportional tax-credit method. Exemption with progression means that the state of residence exempts income from foreign sources, but income in the state of residence is taxed at a rate that would be adjusted to the sum of the income. The proportional tax credit method entails that the qualification of taxes paid abroad in aid of taxes paid in the state of residence cannot exceed the part of tax counted prior to such qualification, which proportionally corresponds with income obtained abroad. In cases where there is no double tax avoidance treaty between Poland and another state, Polish tax law imposes the use of the proportional tax-credit method Returns and filing dates Filing deadline Corporations must self -assess and pay advance income tax during the tax year on a monthly basis, no later than the 20th day of the month following the month for which the advance was calculated. The final calculation and reconciliation of the tax due should be made within three months after the end of the tax year Filing method Annual tax returns may be submitted on paper or electronically. Electronic filing requires possession of an electronic signature Extensions No extension of the required return date possible Penalties If a corporation does not pay taxes, does not file its annual income tax return or any other tax information required by law, management and/or employees of such a company who are responsible for non-compliance with the tax law may be subject to a fine (the amount of which is not strictly provided in the law but there is a range of fines that can be applied, depending on the scale of the tax crime and personal situation of the responsible person. In addition, there is also a possibility of imprisonment for committing a tax crime of a large scale). If a taxpayer does not pay the tax due on time, late interest payment is charged. The interest rate is equal to double the rate of the Lombard credit of the National Bank of Poland. Currently, the late interest rate is 8 percent (as of 1 January 2016) Payment mechanics Internal withholding on resident companies If not exempted, dividends and other payments resulting from participation in profits of a legal person made from resident corporations to resident corporations are excluded from the overall income of taxpayer and subject to withholding. The withholding rate is 19 percent and the tax should be withheld by 15

16 the remitter on the day of making the payment Schedule for tax payments or deposits Tax deposits should be made no later than the 7th day of the month following the month in the course of which the tax was withheld. The withheld amount should be transferred to the account of the tax office competent for the registered office of the taxpayer and information about the amount of withheld tax-prepared in compliance with the set template should be sent to the taxpayer. The taxpayer does not have to file a separate tax return Electronic payments Companies and individual conducting business activity (with some exceptions) have to provide for electronic transfers to the tax authority Interest and penalties If a corporation does not pay taxes (including advance tax payments), does not file its income tax return or any other tax information required by law, employees of such a company who are responsible for non-compliance with the tax law may be subject to a fine (the amount of which is not strictly provided for in the law but there is a range of fine that can be applied, depending on the scale of the tax crime and personal situation of the responsible person. In addition, there is also a possibility of imprisonment for committing a tax crime of a large scale). In cases where a taxpayer does not pay the tax due on time, late interest payment is charged. The interest rate is equal to double the rate of the Lombard credit of the National Bank of Poland. Currently, the late interest rate is 8 percent (as of 1 January 2016). As of January 1, 2016, interest on tax arrears is reduced to 50 percent of the default interest rate where a taxpayer, subject to conditions, submits a corrected tax return and pays the outstanding tax arrears. An increased rate of 150 percent of the default interest rate may also apply in relation to tax on goods and services and excise duty. As of January 1, 2016, Poland taxes undisclosed income at a rate of 75 percent; Statute of limitations Normally, the tax authority must assess any tax in addition to that shown on the original return within five years following the end of the year in which the return was filled Corporate tax rates National taxes Corporate tax rate(s) The main national tax rate for corporations is 19 percent of the tax base Alternative tax regime Small Companies As of January 1, 2017, a 15 percent tax rate applies to small companies. For these purposes, a small 16

17 company is an entity with sales revenues (including the VAT amount on goods and services) that did not exceed the PLN equivalent of EUR 1,200,000 in the previous year. The small company tax rate rules do not apply to the taxpayer in the tax year in which the small company began operations, and in the fiscal year immediately following, if the small company has been created: 1. As a result of the transformation, merger or division of taxpayers, with the exception of the transformation of the company into another company; or 2. As a result of the transformation of the entrepreneur (natural person) engaged in business its own name if the business or company is not a legal person; or 3. By legal persons, individuals or organizational units without legal personality, which contributed to the capital of the taxpayer previously conducting their business, part of an undertaking or assets of the company with a value in excess of a total PLN equivalent of at least EUR10,000; or 4. By legal persons, individuals or organizational units without legal personality, by: contributions in kind to the capital of the taxpayer, or as a result of certain liquidation of other taxpayers, if the person or entity held shares (shares) of other liquidated taxpayers Special reduced rates or regimes Editor's note: The OECD's BEPS Action 5 relates to countering harmful tax practices (including certain preferential IP regimes) more effectively, taking into account transparency and substance. Key country developments can be found in the Bloomberg BNA BEPS Developments Tracker. Small companies can apply for quarterly (instead of monthly) advance tax payments. Small companies can also depreciate some of the fixed assets with a single write-off (instead of gradual yearly depreciation). Companies operating in special economic zones can benefit from exemption of income tax on certain types of activity. Application for benefits is subject to many restrictions and the status of an entity is thoroughly verified. As of January 1, 2017 a 15 percent rate of CIT applies to: Small taxpayers, see Section ; Start-ups (newly-established corporations); however, restrictions apply to entities established as a result of certain restructuring measures (such as mergers and demergers). The preferential rate does not apply to tax groups. The start-up tax rate rules do not apply to the taxpayer in the tax year in which the start-up began operations, and in the fiscal year immediately following, if the start-up company has been created: 1. As a result of the transformation, merger or division of taxpayers, with the exception of the transformation of the company into another company; or 2. As a result of the transformation of the entrepreneur (natural person) engaged in business its own name if the business or company is not a legal person; or 3. By legal persons, individuals or organizational units without legal personality, which contributed to the 17

18 capital of the taxpayer previously conducting their business, part of an undertaking or assets of the company with a value in excess of a total PLN equivalent of at least EUR10,000; or 4. By legal persons, individuals or organizational units without legal personality, by: contributions in kind to the capital of the taxpayer, or as a result of certain liquidation of other taxpayers, if the person or entity held shares (shares) of other liquidated taxpayers Special additional taxes or levies There are no special additional taxes or levies for a particular industry or activities performed by a company State, cantonal, provincial or other local taxes Main rates There are no state taxes in Poland Reduced rates There are no state taxes in Poland State or subnational income calculation Tax base There are no state taxes in Poland Deductions There are no state taxes in Poland State incentives There are no state taxes in Poland Non-income taxes in states There are no state taxes in Poland Taxes imposed as a penalty If the tax authority or tax inspection authority determines the income of the taxpayer in the amount higher (or loss in the amount lower) than that declared by the taxpayer in connection with the transaction/events subject to Polish transfer pricing regime, and the taxpayer does not submit the documentation to tax authorities - the difference between the income declared by the taxpayer and specified by those authorities is taxed at the penalty rate of 50 percent Corporate capital gains and losses Taxation of corporate capital gains 18

19 In Poland, there is no special treatment for income, such as capital gains. Capital losses can offset regular business income. Capital gains cannot be rolled over (deferred) Definition of corporate capital gains In Poland, capital gain is a value reflected in the sale or transfer of property, decreased by tax-deductible costs. It is the difference between the sale price or amount realised from the sale of property, reduced by the original cost Computation Calculation capital gain is calculated as described in Section Special rates there is no special rates or holding period for capital gain in Poland Corporate combinations and divisions Mergers Under certain conditions, when two companies merge under the corporate merger statute, generally neither company is taxed on gain from the transfer of property to the surviving company, and shareholders are not taxed on gain from exchange of shares for shares in the merged company or from the conversion of shares to shares in the merged company. The exemption from gross income does not apply in cases where the main or one of the main objectives of the merger of companies is tax avoidance or tax evasion. As of January 1, 2017, if a merger has not been carried out for valid economic reasons, the government presumes that the main or one of the main objectives the merger is to avoid or evade the tax. In that case, the merger is subject to CIT. This means that the difference between the market value of the assets/property obtained by the remaining company and the nominal value of shares is subject to CIT Transfers of corporate property There are specific tax rules concerning contribution of property to a company in exchange for the shares of the company. The taxation depends on the kind of property which is contributed to the company Share transfers Subject to certain conditions, a company or individual may transfer shares that it owns in a company to another company without paying tax on any gain, but only if the share transfer is made solely in exchange for voting shares of the buying company, and only if the buying company obtains at least 50 percent of the target in that transaction. This exemption is limited only to companies being tax residents of the EU or EEA country. As of January 1, 2017 the tax neutrality of a share-for-share exchange is granted, if the valid business reasons for this transaction exist. Also, the presumption was introduced according to which, if a share-for-share exchange was not carried for valid business reasons, it should be deemed that the main objective (or one of the main objectives) was avoiding taxation (i.e. no valid business reasons exist). In that case, the share-for-share exchange is subject to CIT Divisions or separations Under limited circumstances, a company can undergo a demerger or spin-off that divides it into two smaller companies without recognising tax on any gain, and without shareholders being taxed on receipt 19