All companies (including companies with foreign participation), which are established in Poland and registered in the Commercial Register in the district Registry Court are automatically liable for corporate income tax payments on their taxable income, irrespective of whether it results from domestic or foreign operations.
All other companies, i.e. those domiciled or having their governing bodies abroad, pay corporate income taxes solely on their earnings originating from operations in Poland, subject to the provisions of the double taxation treaty.
The corporate income tax rate is set to:
- 38% in 1997;
- 36% in 1998;
- 34% in 1999;
- 32% in 2000 and years after.
The above rates are charged irrespective of the level of taxable income.
In the absence of a specific choice, the fiscal year is the calendar year. However, companies are free to choose any month for the beginning of the fiscal year, provided that it runs for twelve consecutive months. The tax law provides for a specific procedure for changing the fiscal year, which includes filing an information document.
Corporate income tax is levied on revenues as reduced by eligible costs and expenses incurred in the realisation of those revenues. Taxable income should also be reduced as a result of taxable losses brought forward from the previous three years, and investment relief.
For tax calculation purposes, practically all income is treated as taxable revenue, including donations and revenues from the sale of real estate and titles.
The following are not included as revenues for corporate income tax purposes:
- income and earnings (and related costs) specifically exempted from taxes, irrespective of the country in which they are earned;
- dividends paid by Polish companies;
- in the case of taxpayers with a limited tax liability in Poland - revenues taxed at source, i.e. licence fees.
The second and third categories above are taxed at a 20% rate on gross earnings, that is, without subtracting costs, unless subject to a double taxation treaty. These are in effect for certain countries.
With effect from 1 January 1997, the tax law lays down specific transfer pricing provisions in line with the OECD regulations. The regulations govern transactions with businesses that are connected or enjoying tax exemptions or which have their seat or are domiciled abroad in circumstances where the taxpayer renders services on conditions distinctly in favour of the other party, or when he manages his business so as not to disclose his revenues or discloses them at a level below that which should be expected. In these cases, the tax authorities have the right to determine the amount of tax payable.
Business costs and expenses are generally defined as those incurred in order to earn revenues. Management costs and other expenditures related to foreign-based services are not treated in any exceptional way, although there must be commercial substance and reality to the services provided in order that the related costs can be justified.
As from 1 January 1996 it has been possible for Polish companies to form fiscal groups. The legislation is somewhat restrictive, for example:
- the parent company must hold 100% of the capital of subsidiaries; and
- the group must achieve a profit rate amounting to at least 8%.
Depreciation of fixed assets and amortisation of intangible assets and legal rights are also considered deductible costs; their calculation methods and rates are regulated by a separate legal act.
It should be noted that in contrast to the accounting regulations, the following could be treated as costs of revenues for tax purposes:
- interest paid;
- currency exchange differences realised at payment; and
- costs and losses incurred and not accruals made with respect of expected revenues, losses and costs.
A complete list of expenses which are not deductible for corporate income tax purposes is provided in the text of the tax law. The following are examples of items which are not deductible:
- non recurring insurance payments to company employees for accidents at work and industrial diseases;
- representation and advertising expenses (other than media advertising) in excess of 0.25% of turnover;
- provisions for bad debts, unless the debtor is bankrupt or the debt cannot be collected despite having followed court procedures;
- legal charges incurred due to default in payment of liabilities;
- penalty interest on overdue taxes;
- fines and indemnities arising out of faulty products and services.
Losses incurred during one fiscal year should be set off against income earned during the next three consecutive years, in equal portions. If the profit in any of the three years is inadequate to cover one third of the loss allocated to it, that portion of the loss can not be recovered.
Investment relief deductions on expenses incurred in specific circumstances (e.g. export income exceeds ECU 2,000,000 per annum) has been introduced for the years 1997 - 1999:
- for 1997 - 40% of the tax base;
- for 1998 - 35% of the tax base;
- for 1999 - 30% of the tax base.
The limit for other investment relief due to the taxpayer amounts to:
- for 1997 - 20% of the tax base;
- for 1998 - 15% of the tax base;
- for 1999 - 10% of the tax base.
Certain conditions must be met in order to qualify for the relief, for instance the company must either:
- achieve a profit rate of 8% (4% for the housing and food processing industries); or
- export 50% plus of its turnover; or
- earn income from exporting which accounts for more than 8,000,000 ECU; or
- incur pre-trading investment expenditure of 2,000,000 ECU or more.
In addition, in order to qualify for the relief, a company must have a clean record with the tax authorities and pay all its taxes on time.
The tax law allows donations (e.g. scientific, technical, educational, cultural) to be charged against revenues before tax up to the extent of 15% of pre-tax income before donations, although in some cases only up to 10% (religious, environmental).
The construction of certain apartment buildings for rental purposes may also be treated in the above manner, within specified limits.
Income taxed abroad is either exempted from taxes in Poland (in accordance with relevant double taxation treaties), or is subject to taxation in line with the provisions of those treaties. In situations where such agreements do not exist, such income is added to the income earned in Poland and taxes are levied on the total amount, with the final tax due reduced by taxes settled abroad; however, this decrease is limited by the level of the Polish tax rate applicable to this income.
Tax declarations and current tax settlements are made on a monthly basis based on the current accounting data, and an annual tax return is required.
Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information in this tax newsletter is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska.
This information was correct as of the 5 August 1997
Should you have any questions in relation to the above issues, please contact:
Oliver Sinton KPMG Polska LIM Center - Marriott Hotel - IX floor Al. Jerozolimskie 65/79 00-697 Warsaw, Poland Tel: +48 (22) 630 7236 Fax: +48 (22) 8300 796