The Minimum Tax for CIT Taxpayers from 1 January 2024

From 1 January 2024, the 10 per cent minimum tax for CIT taxpayers will return in Poland after a two-year suspension. The tax will primarily cover limited liability companies, joint-stock companies, limited partnerships, limited joint-stock partnerships and certain general partnerships. What exactly does the CIT minimum tax consist of? Read more about it in this article.

What is the minimum tax?

The minimum tax was introduced into the CIT Act as part of the first version of the so-called ‘Polish Deal’ in order to tighten the tax system and limit activities involving the conversion of income from Polish companies to jurisdictions with a more favourable taxation regime. It was intended to cover entities with a complex structure, including corporations or other entities of significant size, while assuming that taxpayers starting a business should not suffer the consequences of the introduction of the new tax. However, due to numerous controversies caused by the high degree of complexity of the regulations under the ‘Polish Deal’ 3.0, the legislator decided to suspend the application of the CIT minimum tax provisions until the beginning of 2024.

Who does the CIT minimum tax apply to?

The provisions on the minimum tax apply, pursuant to art. 24ca ust. 1 of the CIT Act (Journal of Laws 2023.2805.t.j.), to domestic taxpayers, tax capital groups and foreign taxpayers that conduct their business through a foreign permanent establishment located in the territory of the Republic of Poland. Under the same provision, the aforementioned entities are subject to the minimum tax when:

– incurred a loss from a source of income other than capital gains, or

– have achieved a share of income from a source of revenue other than capital gains, determined in accordance with art. 7 ust. 1 albo art. 7a ust. 1, in income other than from capital gains of no more than 2%.

On the other hand, art. 24ca ust. 14 of the same Act indicates enumeratively the catalogue of entities excluded from the CIT minimum tax. The provisions do not apply to taxpayers:

1) in the tax year in which they started their activity and in two consecutive tax years immediately following that tax year;

2) which are financial undertakings within the meaning of art. 15c ust. 16;

3) if in the tax year they obtained revenues lower by at least 30% in relation to the revenues obtained in the tax year immediately preceding that tax year;

4) whose shareholders, stockholders or partners are exclusively natural persons and if the taxpayer does not hold:

a) directly or indirectly, more than 5%:

– shares (stocks) in the capital of another company or;

– all rights and obligations in a company that is not a legal person;

b) other property rights related to the right to receive a benefit as a founder (founder) or beneficiary of a foundation, trust or other entity or legal relationship of a fiduciary nature;

5) if, during the tax year, the majority of their income other than from capital gains was earned in connection with:

a) the operation in international transport of seagoing vessels or aircraft;

b) the extraction of minerals listed in the Annex to the Act of 9 June 2011. – Geological and Mining Law (Journal of Laws of 2023, item 633, 1688 and 2029), the prices of which depend directly or indirectly on quotations on world markets;

c) the performance of therapeutic activities referred to in Article 3 of the Act of 15 April 2011 on therapeutic activities;

d) transactions referred to in paragraph 2 pkt 2;

6) that are part of a group of at least two companies in which one company holds, directly or indirectly, for the entire tax year, at least 75% of the share capital, share capital or equity interest, respectively, of the other companies in the group, if:

a) the tax year of the companies covers the same period and;

b) calculated for the tax year, in accordance with paragraphs 1 and 2, the share of the aggregate income of the companies in their aggregate income is greater than 2%;

– whereby, in determining the conditions referred to in points a and b, account shall be taken of all companies in the group which are taxpayers as referred to in Article 3 ust. 1 or which belong to a tax capital group;

7) which are small taxpayers;

8) which are municipal management companies referred to in Chapter 3 of the Act of 20 December 1996 on municipal management (Journal of Laws of 2021, item 679);

9) who have achieved the share referred to in subsection 1 pkt 2 in one of the three tax years immediately preceding the tax year for which the minimum income tax is payable of at least 2%;

10) placed in bankruptcy, liquidation or under restructuring proceedings;

11) being a party to the cooperation agreement referred to in Article 20s § 1 of the Tax Ordinance;

12) being a financial institution within the meaning of Article 4 ust. 1 pkt 7 of the Act of 29 August 1997. – Banking Law, the core business of which is the provision of financial services consisting in the acquisition, against payment, from a creditor of receivables arising from the conclusion of a contract for the sale of goods or provision of services between that creditor and the debtor;

13) being mining enterprises receiving public aid pursuant to the Act of 7 September 2007 on the functioning of the hard coal mining industry (Journal of Laws of 2022, item 1309).

Minimum tax versus ‘classic’ CIT

In practice, a situation may arise where a person paying CIT will have a tax liability for both classic CIT and minimum tax in a single year. However, there is no need for double taxation to occur, as the amount of minimum tax to be paid can be reduced by the corresponding amount of classic CIT. Importantly, if the taxpayer pays the minimum tax, he will be able to deduct it from the classical CIT in his tax returns filed in the following 3 years.

From when will we pay the minimum tax?

Although the provisions regarding this tax came into force on 1 January 2022, they were later amended and their application was suspended until 31 December 2023. Therefore, the new rules are effective from 1 January 2024. This means that the first year for which the minimum tax will be due is 2024. For taxpayers whose tax year is other than a calendar year and started before 1 January 2024 and ended after 31 December 2023, the exemption applies until the end of that tax year.

Summary

The first minimum tax settlement for 2024 will already take place in 2025. Therefore, it is worth considering whether the provisions concerning the burden of the new tax apply to our business activity and whether we should be prepared to bear the burden of the applicable levy. An expert opinion from the Tax Law Department of the law firm Sadkowski and Partners may prove particularly useful in answering this question. We encourage you to contact us!