New Minimum CIT
REal Knowledge - about the Polish real estate market #4
The new amendment to the CIT Act introduces a minimum corporate income tax to be imposed on the companies:
- which report a tax loss in the given tax year (other than from capital gains) – excluding, among others, the tax costs related to depreciation write-offs, or
- whose profitability does not exceed 1% (proportion of tax income to revenues).
The tax will be equal to 10% of the tax base calculated as the sum of the following items (inter alia):
4% of the revenues from operating activities increased by the sum of:
- costs of debt financing incurred on behalf of related entities, exceeding 30% of the so-called tax EBITDA;
- deferred income tax related to the disclosure of certain intangible assets, resulting in an increase in gross profit or a decrease in gross loss;
- costs of purchasing certain services or intangible rights (their scope is similar to the list contained in Article 15e of the CIT Act, i.e. advisory, advertising, management and control services, data processing and some intangible assets), incurred on behalf of related entities or from tax havens - in part exceeding PLN 3 million + 5% of the so-called tax EBITDA.
Minimum CIT will not be paid in advance payments, but it will be accounted for as part of the CIT settlements.
Taxpayers will be able to deduct the amount of the minimum CIT paid for a given year from the CIT calculated based on general rules (but it will not be possible to have the minimum CIT refunded directly).
The minimum CIT will not apply, among others, to:
- entities from the financial sector,
- companies with a simple ownership structure, in which partners are exclusively natural persons and where the CIT payer does not have shares in other entities,
- start-up companies (the first 3 years of operation),
- entities experiencing a sudden drop in revenues of 30% or more,
- companies that derived the majority of their operating revenues in a given tax year from activities related to:
- operation of ships or aircraft in international transport,
- extraction of minerals, the prices of which depend directly or indirectly on quotations on the world stock markets.
In addition, the minimum CIT will not apply to companies that are part of a capital group consisting of at least two companies (Polish residents) in which the parent company owns min. 75% direct share in each of the subsidiaries during the whole tax year, if the companies in that group:
- use the same tax year and
- the share of total income of all companies in their total revenues exceeds 1%.
Impact and further steps
Companies should analyze whether they meet the criteria to apply the new minimum CIT, especially if they are subject to the minimum real estate tax – which is a separate charge, unrelated to minimum CIT. They should also consider how the new tax burden may affect the financial modeling profitability of the realized real estate projects.