This country-specific Q&A provides an overview to tax laws and regulations that may occur in Poland.
It will cover witholding tax, transfer pricing, the OECD model, GAAR, tax disputes and an overview of the jurisdictional regulatory authorities.
This Q&A is part of the global guide to Tax. For a full list of jurisdictional Q&As visit http://www.inhouselawyer.co.uk/index.php/practice-areas/tax-second-edition/
How often is tax law amended and what are the processes for such amendments?
There are usually a number of tax changes implemented in Poland each year. They mainly relate to VAT, income taxes, and tax procedures. The changes occur for various reasons including: the implementation of EU Directives and BEPS recommendations, closing loopholes used for aggressive tax optimization, or increasing State revenues, etc.
The draft of the changes is usually proposed by a group of Parliamentary members, or by the Polish government. In the latter case the draft of the proposed changes must be put under the consultation process in which various institutions and interest groups provide their comments.
In order for draft amendments to become binding law, they must be approved by both chambers of the Polish Parliament (the Sejm and the Senat), signed by the President and officially published. In the case of income taxes which are settled on a yearly basis, any draft amendments must be published no later than by the end of November of the preceding year. Income tax changes usually come into force on 1 January of a given calendar year unless the changes are to the benefit of taxpayers in which case they can enter into force any time during the calendar year.
What are the principal procedural obligations of a taxpayer, that is, the maintenance of records over what period and how regularly must it file a return or accounts?
There are a number of procedural obligations for Polish taxpayers relating to particular taxes.
Taxpayers of Corporate Income Tax are obliged to maintain accounting books that allow the determination of the taxable income and payable tax. They are obliged to file annual tax returns by the end of the third month of the following tax year. Together with the tax returns the annual financial statements and approving resolutions should also be filed. Although there are no monthly tax return filing obligations, taxpayers are obliged to make monthly advance payments. Upon the deadline for filing the annual tax return, taxpayers must also pay tax calculated on the annual income less the monthly advances paid during the tax year.
VAT taxpayers are also required to maintain a VAT sale and purchase register. In most cases, filing monthly VAT returns is required by the 25th of the month for the preceding month. Within the same deadline the VAT due for the month is payable. VAT taxpayers are also obliged to file the Standard Audit File for Tax on a monthly basis which provides information on VAT sales and purchases. VAT regulations impose certain other procedural obligations in the case of taxpayers carrying out intra-Community supplies, or intra-Community acquisitions of goods or services.
Specific tax compliance obligations are also imposed on taxpayers in the case of other specific taxes, such as the Tax on Real Estates, the Tax on Means of Transport, Excise Tax, Bank Tax, and the Tax on Civil Law Transactions, etc.
Taxpayers are obliged to keep their tax records and relevant documents connected with the tax records until the tax liability for a given year becomes time barred. The statute of limitation of tax liabilities in Poland is five years counted from the end of the year in which the tax was payable. Therefore, in practice, tax payers are obliged to keep their tax records for six years.
Who are the key regulatory authorities? How easy is it to deal with them and how long does it take to resolve standard issues?
The first instance tax authority is usually (depending on the type of tax and other circumstances) the head of the tax office, the head of the customs-tax office, or the local tax authorities (such as, the president or mayor of a city).
Directors of tax chambers are second instance authorities for appeals against the decisions issued by the heads of the tax offices.
The higher tax authority is the Chief of the National Tax Administration, which can act, in certain cases, as a first instance authority (e.g. in the case of advance pricing agreements, individual tax rulings, or General Anti Avoidance Rules), and in other cases as a second instance authority.
The Minister of Finance has the authority to issue general interpretations of tax law provisions.
Proceedings before the tax authorities are very formalistic and require the exchange of written correspondence. The timing of the proceedings, in certain cases, is prescribed by law (e.g. three months for the issuance of a tax ruling), but certain other proceedings such as tax verifications or audits can take several months.
Are tax disputes capable of adjudication by a court, tribunal or body independent of the tax authority, and how long should a taxpayer expect such proceedings to take?
In cases of a negative tax decision or tax ruling, taxpayers have the right to file an appeal with the administrative courts. The first instance court is a Regional Administrative Court (wojewódzki sąd administracyjny) with the authority for a given location. The judgment of the Regional Administrative Court can be appealed against by a taxpayer or by the tax administration to the Supreme Administrative Court (Naczelny Sąd Administracyjny).
There are no formal deadlines for court proceedings in Poland. In practice, proceedings before the Regional Administrative Court can take from six to ten months, and before the Supreme Administrative Court a further year or two.
Are there set dates for payment of tax, provisionally or in arrears, and what happens with amounts of tax in dispute with the regulatory authority?
Taxpayers of Corporate Income Tax are obliged to pay monthly tax advances by the 20th day of the month following the month for which the advance was due. This is calculated based on the income derived from the beginning of a given tax year and is decreased by the tax advances paid in the preceding months. In certain cases, taxpayers can use a simplified method in which the monthly tax advances are paid based on the income shown in the tax return filed in the preceding tax year.
VAT payments are made by the 25th day of the month following the month for which the tax is paid. This is calculated based on the VAT sales and purchases in a given month.
Other specific taxes have their own rules of payment. For example, the Real Estate Tax should be paid by legal persons by the 15th day of each month.
In the case of a tax dispute, the decision of the tax authority is not enforceable until it has been reviewed by the second instance tax authority (usually the Director of the Tax Chamber). After the second instance tax authority has resolved the appeal from the decision of the first instance authority (usually the Head of the Tax Office) the decision is enforceable unless the execution of the decision has been suspended by the tax authorities or the administrative court to which the decision has been appealed.
Is taxpayer data recognised as highly confidential and adequately safeguarded against disclosure to third parties, including other parts of the Government?
The Polish Tax Ordinance Act stipulates a broad regulation of taxpayer data secrecy. The general principle is that individual data included in tax returns or other documents filed by taxpayers, tax remitters, or tax collectors, as well as data possessed by the tax authorities (e.g. collected during a tax audit) are covered by tax secrecy and cannot be revealed to anybody except for those circumstances specifically indicated in the law. Unjustified revealing of tax information can be subject to criminal liability.
In certain situations, as regulated in the law, tax data can be revealed to specific authorities such as: other tax authorities, courts, or prosecutors, in connection with proceedings conducted by these bodies (e.g. with respect to money laundering or other offences). Tax information can also be provided to foreign tax authorities in accordance with tax treaties concluded by Poland.
Poland is a signatory of the Common Reporting Standard. It was implemented into Polish law on 1 May 2017.
Polish law does not currently stipulate a public Register of Beneficial Ownership; however, the legislative procedure to implement this Register has already been initiated.
What are the tests for residence of the main business structures (including transparent entities)?
The factors determining the tax residency of a corporate entity is the location of its registered office, or the place of management in Poland. Fulfilling either one of these two conditions results in the entity being treated as a Polish tax resident. If two or more countries treat this entity as its tax resident and a so-called conflict of residences occurs, according to OECD guidance (followed by the majority of double tax treaties) the tax residency is determined under the effective management test, i.e. with reference to the place where the management board or equivalent meets and takes key decisions (therefore not where the day-to-day management activities are conducted).
Transparent entities, i.e. partnerships (excluding limited join-stock partnerships) are not subject to CIT, therefore the matter of residency does not apply to them. Income earned by partnerships is allocated to the partners and subject to taxation at their level.
Can the policing of cross border transactions within an international group to be a target of the tax authorities’ attention and in what ways?
The Polish tax authorities are focused on limiting tax optimization structures with the use of cross-border transactions and international structures. In addition, during the tax authorities’ audits, the tax authorities very often check, in great detail, transactions concluded by Polish entities with foreign related parties. This specifically relates to Polish taxpayers’ purchases of intangible services and financing arrangements.
Is there a CFC or Thin Cap regime? Is there a transfer pricing regime and is it possible to obtain an advance pricing agreement?
Polish law includes detailed regulations with respect to CFCs. Polish shareholders are obliged to pay a standard 19% tax in Poland on the income derived by a CFC and file the relevant annual return for such a company. A CFC is defined as a company in which the Polish taxpayer holds at least 25% of the shares for at least 30 days, in case at least 50% of the revenue of this company was generated from passive income and is taxed in the country of residence of the CFC at a rate lower by 25% than the Polish CIT rate (19%). CFCs are also companies located in countries treated as tax havens, or in countries which do not exchange tax information with Poland.
Polish thin capitalization rules limit the deduction of interest paid on loans granted by an entity directly or indirectly holding at least 25% of the shares, or by a company which has a common direct or indirect 25% shareholder with the borrower. Interest on these loans is not recognized as a tax deductible cost when the debt-to-equity ratio exceeds 1:1 in the portion in which the loan exceeds this ratio. It should be noted that Polish law also stipulates an alternative method for the deduction of interest on loans. In general, this method provides that interest and expenses arising from all loans (whether granted by related or non-related parties) are tax deductible based on the value of any tax assets and, as a rule, cannot exceed 50% of the operating profit (except for financial institutions). Thin capitalization rules do not apply, should the taxpayer choose the alternative method.
There is a transfer pricing regulation included in Polish law which states that the conditions at which transactions between related parties are executed can be challenged by the tax authorities if they do not meet the arm's length principle or lead to an understatement of income tax. Transfer pricing rules also impose the obligation to prepare specific and detailed transfer pricing documentation for transactions with related parties on taxpayers.
It is possible to obtain an advance pricing agreement from the Head of the National Tax Administration. However, proceedings connected with the APA is time-consuming (they can last from between six to 18 months in the case of the need to involve foreign tax authorities), and are also burdensome.
Is there a general anti-avoidance rule (GAAR) and, if so, how is it applied by the tax authority? Eg is the enforcement of the GAAR commonly litigated, is it raised by tax authorities in negotiations only, etc?
The General Anti-Avoidance Rules (GAAR) were implemented in Poland on 15 July 2016. Under the GAAR, the tax authorities are empowered to challenge the tax results of a given transaction in case it is artificial and not appropriate, taking into account the overall circumstances, and was executed mainly for tax reasons. Since the GAAR is a new concept, there has not yet been a finalised case in which these rules could be applied. According to the justification provided once implementing the GAAR, they should be applied somewhat rarely, and mainly in significant cases.
The GAAR regulation stipulates the possibility for obtaining a special ruling securing a given transaction against the application of the GAAR to a given transaction. During the first year of the GAAR being in force, no such ruling has been granted.
Are there any plans for the implementation of the OECD BEPs recommendations and if so, which ones?
Poland has already implemented a number of OECD BEPS recommendations. A number of which were included into Polish law even before the BEPS Actions were announced in 2015. Poland has already implemented: VAT on digital services rendered to customers, hybrid regulations provided by EU Parent-Subsidiary Directive, CFC rules (the draft amendments to these rules are currently being processed), limitation of interest deductions through thin capitalization (further amendments in this case have been proposed in the 2017 draft amendments to the CIT Law), harmful tax practices (the GAAR implemented in July 2016, and the exchange of tax information in May 2017), prevention of treaty abuse (anti- avoidance rule for dividend implemented in January 2016, beneficial owner concept in January 2017), and significant amendments to transfer pricing documentation requirements. There are also plans for implementing the remaining BEPS Actions.
How will BEPS impact on the government’s tax policies?
BEPS recommendations are fully in line with the current approach of the Polish government regarding taxation policy. The government is focused on increasing its fiscal revenue through fighting aggressive tax optimization and fiscal offences (e.g. as in the case of VAT carousel practices). Therefore, the Polish tax authorities will use all of the instruments provided in the BEPS recommendations to reduce the scale of tax evasion and tax avoidance in Poland.
Does the tax system broadly follow the recognised OECD Model?
Does it have taxation of; a) business profits, b) employment income and pensions, c) VAT (or other indirect tax), d) savings income and royalties, e) income from land, f) capital gains, g) stamp and/or capital duties.
If so, what are the current rates and are they flat or graduated?
In general, the Polish tax system follows the recognized OECD Model. This model stipulates several types of taxes and rules specific to the taxation of income derived from specific sources.
a) Taxation of business profits
Business profits derived by corporations are subject to Corporate Income Tax at the 19% rate. Business profits include the overall income from business activities also including any interest, royalties, capital gains, or others.
Business profits derived by individuals are generally taxed either at the 19% fixed rate or at the progressive rates of 18% and 32%. Certain specific types of business conducted by individuals can also be taxed at fixed rates varying from 2% to 20% in which case the tax is calculated on the amount of revenue without the deduction of tax costs.
b) Taxation of employment income and pensions
Income from employment and pensions is taxed at the progressive tax rate of 18% and 32%. The 32% rate applies to an annual income exceeding 85,528 PLN.
The Polish VAT system is compliant with the EU VAT Directives. Supplies of goods and services are generally subject to VAT at the standard rate which currently stands at 23%. For certian goods and services the reduced VAT rates of 8%, 5%, 4% or 0% apply. Certain goods and services are exempt from VAT.
d) Taxation of savings income, and royalties
Income from interest obtained by individuals not conducting business activity is taxed at the fixed rate of 19%, whereas royalties are taxed at the progressive rate of 18% and 32%.
e) Income from land
Income derived by private individuals from the letting of immovable property is taxed either at the progressive rates of 18% and 32% (in this case the tax is calculated on the income after the tax costs deductions), or at the fixed rate of 8.5% (calculated on the revenue without any cost deduction).
f) Capital gains
Capital gains derived by private individuals are taxed at the fixed 19% tax rate.
g) Stamp duty/Capital duties
Stamp duty is imposed on various documents or permits obtained from authorities. Most often, a stamp duty of 17.00 PLN is paid on powers of attorney presented at authorities.
Capital duty (Tax on Civil Law Transactions) is payable on various transactions undertaken under civil law in cases where these transactions were not taxed with VAT. For example, the sale of goods or property rights exercisable in Poland is subject to a TCLT at the rate of 2% or 1% respectively. Granting a loan is subject to a 2% TCLT.
Is the charge to business tax levied on, broadly, the revenue profits of a business as computed according to the principles of commercial accountancy?
Taxpayers conducting business activity are obliged to maintain accounting records which allow for the determining of the income for taxation. The financial result shown in the accounting books is a starting point for determining the taxable basis; however, due to the differences between the accounting and tax treatment of certain operations, relevant adjustments are made for tax purposes.
Are different vehicles for carrying on business, such as companies, partnerships, trusts, etc, recognised as taxable entities? What entities are transparent for tax purposes and why are they used?
From the perspective of income taxation, Polish law recognizes differences in entity structures, such as companies and partnerships; however, it does not explicitly regulate the tax status of trusts. Corporations and partnerships limited by shares are treated as taxpayers of Corporate Income Tax separate from the partners. Partnerships are transparent from an income tax perspective which means that revenues and costs are allocated for tax purposes to the partners. These tax transparent vehicles are often used by individuals due to the fact that in these cases the tax is paid only once, whereas in the case of companies, the tax is paid twice (on the income of the company and on the dividend paid to the shareholder). Limited partnerships are sometimes also used by companies which enable splitting various investments into separate operating entities and at the same time grouping the tax results of all of the entities at the shareholder company.
From the VAT perspective, companies and partnerships are treated as taxable entities.
Is liability to business taxation based upon a concepts of fiscal residence or registration? Is so what are the tests?
Liability to taxation is based on residence. For individuals, this is a matter of their physical presence in Poland for 183 days or more within a single tax year, or having a centre of personal or economic interests (centre of vital interests) in Poland. For companies, it is based on the place of management, or the location of its registered seat in Poland.
Are there any special taxation regimes, such as enterprise zones or favourable tax regimes for financial services or co-ordination centres, etc?
There are several Special Economic Zones (SEZ) established in Poland which are administratively separate parts of Poland, allocated for business activities. Income derived from business activity conducted in an SEZ is generally exempt from taxation (upon certain conditions, and up to specific limits, specifically depending on the investment costs). Income unrelated to the activity covered by the respective permission granted by the authorities is, however, taxed. In addition, business activity exempt from taxation within an SEZ is taxed if performed outside the SEZ.
Are there any particular tax regimes applicable to intellectual property, such as patent box?
Expenses on R&D activities, apart from being tax-deductible costs based on general rules, can be deducted (however partially, up to 50%, depended on the types and size of the taxpayer's activities) from the tax base. These costs are deductible if they are not reimbursed to the taxpayers in any way.
Extra deductions are made in the return for the tax year in which the costs were incurred (not on an on-going basis). If the taxpayer reported a tax loss, or that their income was lower than the amount of the deductions to which they were entitled, the deductions are carried forward for three tax years – in the total amount, or the remaining part.
Is fiscal consolidation employed or a recognition of groups of corporates for tax purposes and are there any jurisdictional limitations on what can constitute a group for tax purposes? Is a group contribution system employed or how can losses be relieved across group companies otherwise?
A “tax capital group” (TCG) can be formed in Poland for the purpose of consolidating Corporate Income Tax only by (at least three) limited liability or joint-stock companies based in Poland and under relatively strict conditions (e.g. the minimum term of the agreement - three years; the minimum share of income in the revenue of the tax group cannot be lower than 3% in each year; or the average share capital of each company cannot be lower than PLN 1,000,000). Taxable income for the group is calculated by combining the incomes and losses of all the companies forming the group.
Are there any withholding taxes?
Poland imposes withholding taxes on various payments. In particular, withholding tax is levied at 19% rate on dividends and other income from sharing in legal persons' profits. Interest, royalties, and various intangible services are also subject to withholding tax at an applicable rate of 20%.
The withholding tax rate resulting from Polish law applies unless a relevant double tax treaty concluded by Poland stipulates a lower rate, or an exemption. For the application of the double tax treaty, an up-to-date tax residency certificate of the payment recipient is required.
In case of payments received by certain specific types of entities (such as EU/EEA pension funds, or investment funds), different withholding tax treatment can also result from Polish domestic legislation. In addition, the relevant provisions of Polish law which implemented the EU Parent-Subsidiary Directive and the EU Interest-Royalties Directive states the exemption, under specific conditions, of the dividend and the interest paid to certain associated companies.
Are there any recognised environmental taxes payable by businesses?
The law on taxation for the extraction of certain minerals implemented in 2012 imposes taxes on the extraction of copper and silver. It is planned that, in the future, this tax will also be imposed on the extraction of natural gas and oil.
Except for the above, environmental fees are charged in certain situations for the usage of the environment. However, this fee is not formally treated as a tax, but as a type of administrative burden of a different nature (this fee is due, for example, for the emission of gases and dust into the air, or for trees felling without a permit).
Is dividend income received from resident and/or non-resident companies exempt from tax? If not how is it taxed?
Dividend income obtained by corporations from resident companies is, as a rule, subject to a standard taxation of 19% tax. However, this income is exempt in cases where the income is obtained by a company that owns at least 10% of the shares in the paying company directly and constantly for at least two years.
Dividend income obtained by corporations from non-resident companies is, in principle, taxed at the 19% rate. However, dividend is exempt from Polish tax if it was obtained by a Polish company from a company resident in another EU or EEA country in which the Polish shareholder holds at least 10% for two years.
Dividend income derived by Polish individuals from resident or non-resident companies is subject to the 19% tax.
From the perspective of an international group seeking to re-locate activities from the UK in anticipation of Brexit, what are the advantages and disadvantages offered by the jurisdiction?
There are a number of advantages for Poland as a post-Brexit location for UK business. The majority of them result from the fact that Poland remains part of the EU which means that it is part of the single market and there are no customs duties on trading with other EU countries. Polish law is broadly harmonized with EU law, in particular with respect to VAT matters, as well as withholding taxes on the distribution of dividends, royalties, and interest. Poland is also a party to approximately 80 double taxation treaties which reduce the risk of double taxation of the income in cases of cross-border transactions.
The Polish tax system offers certain instruments which secure the position of a taxpayer, such as individual tax rulings and advance pricing agreements.
Although the tax authorities are currently focused on the increase of collections from taxes, it should be noted that the tax rates in Poland remain at a relatively low level compared to other EU countries. The income tax rate applicable to business profits is 19% and employment income is taxed at the 18% and 32% progressive rates.
The disadvantages are that Polish jurisdiction is prone to frequent changes in the tax regulations, the tax authorities’ very formal approach to taxpayers, as well as the extensive time necessary for cases to be resolved by the courts.