The most important amendments in PIT and CIT from 1 January 2018
On 22 November 2017, the president signed a bill amending the PIT, CIT and flat-rate income tax provisions on certain revenues earned by natural persons.
The scope of introduced amendments is very broad. Among the most important ones, the following are mentioned in our evaluation:
1. Taxation of commercial real property
A minimum PIT and CIT tax will be introduced on real property for owners of commercial real property whose initial value exceeds 10 million PLN. The tax will amount to 0.035% of the initial value of the property per month. The minimum tax will be deducted from the income tax calculated om general terms and conditions.
2. A flat fee for private tenancy
The current tax rate of 8.5% will apply to revenues of up to 100,000 PLN per annum. Surplus over the above limit will be taxed at the rate of 12.5%.
3. Increased amount exempt from PIT
The amount exempt will be increased from 6,600 PLN to 8,000 PLN. The amount reducing the tax will be:
- 1,440 PLN for the tax base not higher than 8,000 PLN,
- 556,02 PLN for the tax base higher than 13,000 PLN, but not exceeding 85,528 PLN,
- for the tax base higher than 8,000 PLN but not exceeding 13,000 PLN, the amount will be calculated according to the formula and will decrease as the tax base increases (it will range from 1,440 PLN to 556.02 PLN).
The benefit of the increase in the amount exempt from tax will be particularly profitable for people earning the lowest income from work and vast majority of pensioners.
4. Increased amounts exempted from PIT for certain benefits
The amendment envisages an increase in the amount exempted from PIT, including increases for:
- revenues generated in competitions and games and prizes related to selling with premiums – the amount of the exemption resulting from the amendment is 2,000 PLN (the current amount of the exemption is 760 PLN),
- benefits financed by ZFŚS [Company Social Benefit Fund] – the amount of the exemption resulting from the amendment amounts to 1,000 PLN, (the current amount of the exemption is 380 PLN).
5. Limitation of tax deductible expenses for particular services and intangible assets
A limit will be introduced for including the following costs as tax deductible expenses:
- consulting services, market research, advertising, management and control, data processing, insurances, guarantees and warranties, etc.,
- fees for using or the right to use some of intangible assets (including proprietary copyrights, licenses, know-how),
The limit will amount to 5% of the EBITDA ratio for expenditures constituting a surplus over 3 million PLN per year.
6. Increasing flat-rate tax deductible expenses for authors (creators)
As part of the amendment, the limit of 50% of the tax deductible expenses will be increased for persons performing creative work and disposing of copyrights on this account. The currently applicable limit of 42,764 PLN has been replaced by the amount two times higher, i.e. 85,528 PLN per annum.
Only representatives of certain professions will be entitled to apply the flat-rate costs of 50% to the above-mentioned limit, i.e. creators in the field of architecture, literature, fine arts, photography, computer programmes, journalism, research and development activities, art, etc. This is a limitation of the scope of application of the provision in comparison to the current legal status.
7. Limitation of tax deductible expenses for interest on credits and loans
Pursuant to the amended regulations, the restrictions concerning charging interests as tax deductible expenses resulting from the provisions of the so-called thin capitalisation (regarding a particular category of related entities) have been replaced by new regulations providing the maximum amount of financing costs in relation to EBITDA. Under the new regulations, the restrictions on charging interests of loans / credits as tax deductible expenses will apply to the part of financing costs exceeding 30% of EBITDA (in the part exceeding 3 million PLN of financing costs).
The possibility was introduced that the remaining part of costs (not recognised as costs in a given tax year) is the tax deductible in the next 5 tax years, while other conditions are met. The restrictions apply to both affiliated parties and unrelated parties, but not qualified as so-called financial enterprises (including banks, SKOK [Credit and Savings Union]).
Similar restrictions concerning charging as expenses will also apply to the costs of securing liabilities, interest part of leasing instalments, commissions for granting financing as well as penalties and interests for delays in repayment of liabilities.
8. Tax capital groups
From the beginning of the new year, it will be easier to operate within the PGK [tax capital group], as the following will be reduced:
- average share capital of companies forming PGK [tax capital group] from 1 million PLN to 500,000 PLN,
- threshold of the minimum direct share of the parent company in subsidiaries from 95% to 75%,
- minimum level of revenue share of PGK from 3% to 2%.
In addition, an agreement on establishing a PGK will have to be submitted not 3 months, but 45 days before the beginning of the tax year. If the operating conditions of PGK are breached, companies forming the PGK will be obliged to settle CIT as if PGK had never existed, 3 years back.
9. Expenses for the purchase of fixed assets and intangible assets in tax deductible expenses
From the new year, taxpayers will not have to depreciate fixed assets or intangible assets whose initial value will not exceed 10,000 PLN. Until now, it was possible to recognise as tax deductible expenses fixed assets or intangible assets whose value did not exceed 3,500 PLN.
10. Distinguishing sources of revenue in the CIT Act
From 1 January 2018, two sources of revenue were distinguished in the CIT Act, i.e. income from the so-called capital earnings and other income. The catalogue of revenues classified as the so-called capital earnings, which include in particular revenues treated currently as income from a share in profits of legal persons has been regulated statutory. The amendments are aimed at eliminating the possibility of combining income and losses from particular sources of revenue.
11. Increased allowance for research and development activities in CIT and PIT
Pursuant to the Act of 9 November 2017 amending certain acts to improve the legal environment of innovative activity, the possibility of increasing the tax allowance for research and development activities from 50% to 100% (or 150% for Research and Development Centres) was introduced. It means that entrepreneurs incurring expenditure on research and development activities that meet the statutory criteria will be able to deduct from the tax base an additional 100% of costs incurred (apart from the general possibility of including these expenses as the tax deductible expenses).
At the same time, we would like to inform you that amendments in the introduction of the so-called mechanism of split payment in VAT (split payment) will come into force on 1 April 2018. We wrote about the details of this solution in our newsletter in May.
We would like to point out that the amendments in tax regulations starting from 1 January 2018 are very extensive, and the information that we present is only intended to present a summary of the most important areas where amendments occurred. Due to a complex nature of the amendments, we encourage you to contact our tax advisors in order to discuss their possible impact on your business.
Barbara Otrzonsek, Tax Consultant, ATA Tax Sp. z o.o.