If you are planning to open a business in Poland, you have probably already realised that Poland has become one of the countries that investors are most interested in.
This is due in particular to its absorbing and large market (37.5 million people) as well as to the activities undertaken by the authorities which, through their policies, support the development of business in Poland This also applies to tax issues, which facilitate many investment activities.
The requirement to pay Polish taxes constitutes a prerequisite for doing business in Poland. In this post, I will provide some general information about taxes in Poland.
I will mainly focus on the taxes paid by companies and entrepreneurs.
In Poland, we have the following types of taxes:
1. Personal income tax (PIT),
2. Corporate income tax (CIT),
3. Tax on goods and services (VAT)
4. Tax on civil law transactions (PCC),
5. Real estate tax,
6. Excise tax,
7. Inheritance and donation tax.
All of the above taxes are regulated in laws enacted by the Polish legislator. These laws contain, in particular, information on tax rates or taxpayers' obligations.
Not all of the above taxes apply to entrepreneurs. Of course, taxes may occur cumulatively or be interdependent. For example:
a) an entrepreneur may be obliged to pay both excise duty and VAT simultaneously on the same sale transaction.
b) As a rule, when a company makes a profit, it is obliged to pay CIT, but it may also be obliged to pay PIT by its partners (which is e.g. obligatory in the case of a limited partnership).
There are really many possibilities; if you need to determine the principles of taxation in your case, write to us.
Taxation of companies in Poland is the most important for entrepreneurs and investors.
The type and amount of taxes to be paid depends, among others, on the form and type of business.
Therefore, it is particularly important to plan the company's activities properly even before it is established. A change in the mode of taxation is possible only once a year or may involve a costly transformation of the company.
The development of an appropriate company structure already at the very beginning of its existence allows for legal tax optimisation. This allows for significant savings on taxes paid by both the company and its partners. At our law firm, we assist in determining the appropriate structure of the company, both from the tax and corporate perspective.
Write to us if you plan to invest in Poland or open a company here. We will help you prepare the formal side of your business in an optimum way.
Let us discuss now the specific types of taxes.
Corporate income tax (CIT) is the basic tax paid by companies in Poland.
It applies to, among others:
1. capital companies, i.e. the most popular ones: limited liability companies, simple joint-stock companies and joint-stock companies,
2. limited partnerships and limited joint-stock partnerships
3. general partnerships (under certain terms),
4. tax capital groups.
The main CIT rate in Poland is 19%. However, the standard rate may be as low as 9% for the so-called small taxpayers (whose annual revenues do not exceed the equivalent of EUR 2 million).
Under certain terms, companies may also defer payment of CIT until distribution of the profit generated by the company. This is related to the regulations on the so-called "Estonian CIT", which were amended in a favourable manner in connection with the entry into force of the recent tax changes (the so-called Polish Order). Thanks to this solution, the company does not pay CIT as long as it does not distribute profits to its shareholders. This solution allows for accumulation of capital in the company and a significant increase in its investment potential from its own resources.
The CIT regulations also include many solutions favourable to taxpayers, such as a credit towards research and development (R&D), which makes it possible to reduce the tax payable.
The tax credit known as the IP Box is also very beneficial. This is a special tax credit for entrepreneurs to encourage research and development. Thanks to the said credit, companies that commercialise innovative solutions related to intellectual property can reduce the tax rate on profits from these sources to only 5%! This privilege is not limited in time, so intellectual property that is commercialised will be taxed at this preferential rate for as long as it generates profits.
Such a credit can be granted to all IT solutions (all new software) but also new inventions and patents or all technological solutions.
This solution is particularly beneficial for start-ups that want to set up in Poland. What is important, profits made by such start-ups are subject to favourable taxation regardless of the place of sale. Consequently, a start-up based in Poland can sell its solutions to the entire EU or US, and its profits will be taxed with 5% tax (in case the IP BOX credit is obtained).
In addition to the taxation of the companies with CIT, the shareholders of such companies are also taxed. This obviously applies to situations in which the company pays out profits (so-called dividends) to its shareholders.
Shareholders who are natural persons and have their place of residence in Poland are subject to taxation on their entire income, regardless of the location of the sources of revenue (unlimited tax obligation in Poland).
On the other hand, shareholders who do not reside in Poland (e.g. foreign investors in a Polish limited-liability company) are subject to tax obligation only with respect to the income earned in the territory of the Republic of Poland (limited tax obligation in Poland).
According to the regulations, a person is deemed to be a resident of the Republic of Poland if
a) they stay in the Republic of Poland for more than 183 days in a tax year, or
b) have a centre of their personal or economic interests within the territory of the Republic of Poland (the so-called centre of interests).
Significantly, the above rules are applied taking into account the provisions of double taxation treaties concluded by Poland with other countries. Taxation of profits on the part of foreign partners in a Polish company may therefore differ depending on the treaty concluded by Poland with the investor's country of origin/residence.
The PIT rate on income from dividends and other income from participation in profits of legal persons (e.g. limited liability companies or joint-stock companies) is 19%. However, in the case of foreign individuals who are shareholders in Polish companies, attention should be paid to specific provisions arising from double tax treaties, which ultimately reduce taxation in Poland.
It is also important for foreign investors that taxes may not be paid if a foreign company is an investor in a Polish company, especially if it is a company from another EU country.
In such a case, profit distributions may be exempt from withholding tax. Thus, a Polish company will not pay tax on its profit, which is transferred to the parent foreign company.
This is a particularly beneficial solution for foreign companies wishing to invest in Poland by opening a subsidiary here.
Polish VAT regulations are based on European Union directives.
VAT in Poland is imposed on the supply of goods and provision of services as defined by Polish law. However, transactions involving the sale of a business or an organised part of a business are not subject to VAT. As a result, all M&A transactions are not subject to VAT.
The standard VAT rate for goods and services is 23%. However, in the case of many supplies or services, Polish regulations provide for reduced VAT rates (including, inter alia, 8% and 5%). In some cases it is also possible to be completely exempt from VAT - irrespective of revenue. Particularly, start-ups from the MedTech and HealTech sectors may be exempted.
Virtually every type of business requires an individual analysis of the VAT rules applying to a given company. If you want to find out how your company should pay VAT, please contact us.
The tax system in Poland is not the simplest one, fortunately, there are tools allowing to easily determine the taxation principles of a business.
In Poland, it is possible to obtain a so-called binding tax interpretation.
This means that before you start your business (or even a specific business activity), you can request a tax interpretation from the tax authorities.
In this way, even before you start the business, it can be determined on what principles the company or its specific activity will be taxed. This provides considerable comfort and eliminates the risk of tax problems in the case of complicated activities.
In order to obtain an individual tax interpretation, an appropriate application must be filed with the tax office. Our Firm draws up such applications. Simply write to us if you need help in applying.
The operation of companies in Poland (also by foreigners) is often associated with the requirement to pay other taxes.
These include, in particular, the tax on civil law transactions (PCC), real estate tax or excise duty.
The extensive tax system in Poland and the fact that it has been subject to frequent changes in recent years (e.g. in connection with the introduction of the Polish Order) means that companies in Poland (including those run by foreigners) require the support of qualified and experienced lawyers. These lawyers, who are tax experts, enable legal settlement of taxes in Poland and, in certain cases, advise on how to legally reduce tax obligations.
If you need more information on taxes in Poland and plan to open a business here, please contact us and we will be happy to provide assistance.