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Estonian CIT – soon in Poland

2020-11-09

On October 28, 2020 the Sejm (the lower house of the Polish parliament) passed an amendment to the act introducing a lump-sum tax on company revenues, i.e. the so-called Estonian CIT. Therefore, in all probability the announced changes in the taxation of limited liability companies and joint-stock companies will take effect at the beginning of the new year.

However, not all businesses will benefit from the new solution. In addition to the restriction on running a company in a specific legal form, certain additional criteria will have to be met, including:

  • company’s turnover not exceeding PLN 100 million,
  • having only shareholders who are individuals,
  • no shares held in other entities,
  • hiring at least 3 people,
  • the operating revenue exceeding passive revenue,
  • incurring capital expenditure.

A company which decides to apply the simplification and fulfils jointly all the above criteria will be able to postpone the payment of the tax until the profit is paid out. In the Estonian system, revenue is taxed not when it is earned, but when it is used for consumption purposes. Such a solution is supposed to allow for reinvestment of profits and development of enterprises.

However, it is difficult to find a reasonable explanation for excluding a significant part of companies from the Estonian CIT. The Ministry of Finance cites the inefficiency of applying this solution to larger entities - often with a somewhat more complex structure and with participation of foreign capital. In the opinion of the Ministry, this could lead to tax avoidance, while the aim of the new solution is to support the operational activities of micro, small and medium-sized enterprises as well as increasing the value of their investment outlays.

Despite rejection, on the 20th session of the Sejm, of all amendments regarding the Act, also those aiming to extend the application of the system to other companies, it is possible that in the near future the list of entities eligible for Estonian CIT will be supplemented, e.g. by cooperatives. The Ministry of Finance announces that it will undertake works in this area.

 

Natalia Szymocha, Tax Consultant, ATA Tax Sp. z o.o.

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