New tax regulations
Amendments the CIT Act
1. Amendments to CIT / Amendments to the Polish Deal signed by the President
The Act amending the CIT Act and some other acts (“Polish Deal”) has been signed by the President, which means CIT taxpayers will face new changes in this respect.
Below we present selected amendments thereto.
Favourable changes in WHT include WH-OSC statements that allow for an exemption from the pay and refund mechanism. The original statement will remain valid until the end of the tax year in which it has been submitted (now it remains valid until the end of the second month following the month in which it has been submitted), and the subsequent statement will be submitted after the end of the tax year. The amendment will mitigate some of the burden of the pay and refund mechanism in capital groups that pay dividends, interest and royalties.
Debt financing costs
The amendments cover also regulations regarding classification of debt financing expenses as tax-deductible costs. In this respect:
- the legislator has clarified the amount of debt financing costs that should be excluded from tax-deductible costs i.e. the amount exceeding: (i) PLN 3 million, or (ii) 30 percent of “tax EBITDA”, whichever is higher;
- the provisions on excluding debt financing expenses incurred for the purpose of capital transactions from tax deductible costs will not apply, if (i) the debt financing is provided by a bank or a credit union with its registered office in an EU member state or in an EEA state, or (ii) if the debt financing is used for acquiring shares in a non-related entities.
Refund of minimum tax on buildings
The procedure of refunding the tax on revenue from buildings will be simplified. The existing procedure of refunding upon taxpayer’s request requires analysing whether the calculations regarding tax liability (or loss) amount, as well as those of the minimum tax on buildings are correct and issuing an appropriate decision. The new regulations that simplify the refund procedure will come into effect in relation to requests submitted after 1 January 2023. The refund will not necessitate issuing a decision in cases when the submitted requests do not give rise to any doubts.
Other changes include:
- Exemption from the minimum income tax until the end of 2023;
- Revoking regulations regarding hidden dividend;
- Clarifying regulations regarding application of income transfer provisions;
- Cancelling the obligation to prepare TP documentation for the so-called indirect transactions with tax haven entities;
- Clarifying provisions regarding controlled foreign companies (CFC).
You are welcome to read our Tax Alert presenting a short summary of key amendments to CIT effective from 2023.
2. Real estate companies are notified about errors in the filed CIT-N1/PIT-N1 forms that present their ownership structure
Real estate companies receive notices regarding errors in the filed CIT-N1/PIT-N1 forms, in which they present their ownership structure. The errors involve providing no Polish tax identification number (NIP) of their foreign shareholders. The deadline for real estate companies and their shareholders holding at least 5 percent of shares to supply appropriate information passed on 30 September 2022.
Tax offices inform that a failure to amend the forms and provide the Polish tax identification number of foreign shareholders will be equivalent to the sanction in the form of not accepting the unamended information. Failure to provide tax information undergoes a fine of up to 120 daily rates in line with Article 80 of the Penal Fiscal Code.
The CIT-N1/PIT-N1 forms do not clearly indicate the need to provide the Polish tax identification number of each foreign shareholder of a real estate company. Moreover, it is hard to justify the need to assign the Polish NIP to all foreign shareholders who may never be obliged to pay taxes in Poland.
Please be reminded that the next ownership structure reporting deadline for real estate companies falls on 30 March 2023. In light of numerous doubts related to the reporting, both on the side of real estate companies and their shareholders, we recommend an in-depth analysis in this respect and preparing well in advance to fulfil the reporting obligation.
3. Tax depreciation excluded from tax-deductible expenses as of 2023
Since 1 January 2022 depreciation write-offs related to residential buildings and flats have been excluded from tax deductible expenses. PIT and CIT taxpayers may, however, use the transitional exemption that allows classifying depreciation write-offs on residential buildings and flats purchased or built before 31 December 2021 as tax deductible expenses.
As of 1 January 2023, however, such depreciation will be fully excluded from tax-deductible expenses.
4. Real estate tax may increase by approx. 12 percent
Maximum real estate tax rates for 2023 as published by the Minister of Finance:
- PLN 1.16 per sq.m for land used for business purposes (vs. PLN 1.03 per sq.m in 2022) and
- PLN 28.78 per sq. m for buildings (or parts thereof) used for business purposes (vs. PLN 25.74 per sq.m in 2022).
Decisions regarding the application of maximum or lower rates in a municipality will be made by local authorities.
5. Sale of shares in a real estate company taxable even in the case of foreign reorganisation transaction
In the latest individual rulings, the Head of National Revenue Administration has decided that real estate companies are obliged to pay tax not only upon sales of shares, but also when shares in such a company are transferred as part of a foreign reorganisation transaction in the form of demerger.
Taxpayers who plan to reorganise their capital groups should thoroughly analyse tax effects of restructuring activities performed both in Poland and abroad, even if the restructuring process is indirectly related to real estate companies located in Poland. Special attention is recommended for entities originating from countries that concluded a double taxation treaty with Poland including the so-called real estate clause, i.e. a provision allowing Poland the taxation of profits generated by non-residents on sales of shares in real estate companies located in Poland.
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