Planned changes in income taxes from 2021 - draft law published
On September 16, 2020, a bill of amendments to the income tax laws was published. The most important issue regulated by this bill is the inclusion of limited partnerships and some general partnerships into the circle of CIT taxpayers. The draft also contains a number of other issues important for taxpayers, such as limiting the possibility of settling tax losses, increasing the income limit for taxpayers entitled to apply the 9% rate, introducing a definition of a real estate company and imposing remitter obligations on such a company and obliging taxpayers to prepare and publish a tax strategy.
Below, we present a summary of the most crucial changes that can be found in this draft.
- Limited partnerships and certain general partnerships as CIT taxpayers
So far, limited partnerships and general partnerships have been treated as transparent for the purposes of income tax, i.e. it have been the partners rather than the partnerships who have been the taxpayers it was them who taxed the income from the share in profits in such partnerships with a single (usually 19%) tax . Natural persons being members in partnerships have been obliged, since 2020, to pay the so-called solidarity levy (at a rate of 4%) on their income exceeding PLN 1 000 000. Such a level of tax burden was more favourable than the tax burden when conducting business in the form of a limited company (sp. z o.o.) and transferring profits from the company level to the shareholder level in the form of dividends (in the case of small companies, the effective taxation was about 26%, and in the case of larger entities generating revenues above the equivalent of EUR 1,200,000 - about 34%).
According to the bill, limited partnerships will be treated as CIT taxpayers, which means that the income received from them will be taxed twice – once at the company level at the rate of 9% or 19% and secondly, at the level of the partners. The bill also provides for the exemption of 50% of a limited partner’s revenue from a share in the profits of a limited partnership, but not more than PLN 60 000 from the share in the profits of each limited partnership. This preference will apply only to limited partners unrelated to the general partner. In such a situation, limited partners in the very popular limited partnerships whose general partner is a sp. z o.o., having limited partners on the management board or as partners, will not be entitled to take advantage of these preferences. The general partners in such limited partnerships, by being able to credit the tax due from the company, will generally maintain one-time taxation of their share of profits.
Additionally, the explanatory memorandum to the bill shows that it is intended to "(...) introduce an exemption in the case of limited partnerships, where the links between the partners do not indicate an "optimization goal" of their establishment, from income tax of the income of limited partners in such partnerships, as a result of which the effective taxation of the income of such partners from a share in the profits of the limited partnership (taxed at the CIT rate of 9% of the obtained income) will remain at a level comparable to the effective taxation of such partners resulting from the provisions of the CIT Act and the PIT Act in their wording binding until the end of 2020. (…)”. The present draft does not yet include provisions regulating the scope of this exemption.
Moreover, general partnerships having among their partners persons other than natural persons, who do not inform the tax authorities about taxpayers obliged to tax their shares in profits, will also be treated as CIT taxpayers.
- Limitations on the settlement of tax losses
The draft proposes to limit the possibility of settling tax losses of a taxpayer if such a taxpayer has taken over another entity or acquired an enterprise or an organized part of an enterprise (also as a contribution in kind), as a result of which the key business activity actually conducted by the taxpayer after such takeover or acquisition, in whole or in part, has been different from the key basic activity actually conducted by the taxpayer before such takeover or acquisition, or at least 25% of the shares (stocks) of the taxpayer are held by an entity or entities which, as at the end of the tax year in which the taxpayer suffered the loss, did not have such rights.
The proposed change is aimed at limiting the practice of taxpayers using the tax losses of another entity to reduce their own tax liabilities.
- Change in tax depreciation rules by taxpayers benefiting from the exemption
The bill sets out to limit the possibility of increasing or decreasing the depreciation rates for assets by taxpayers benefiting from the object-based exemption (e.g. when doing business in a special economic zone). The limitation will only apply to fixed and intangible assets introduced to the books after January 1, 2021.
- Introducing a definition of a real estate company
The bill defines the concept of ‘real-estate company’ as an entity, including a non- company, in which at least 50% of market value of the assets, in any period of 12 consecutive months, directly following one another, comprised real estate located in the territory of Poland, or rights to such real estate.
If shares or rights in such a real estate company are being sold and if the seller or buyer is a foreign entity, then the real estate company will act as a remitter, i.e. it will be obliged to collect and pay the tax to the bank account of the relevant tax office. However, the bill does not regulate the way in which the seller is to settle with the real estate company, as it is formally the seller is obliged to pay the income tax on the sale of shares or rights in such a company.
- Obligation to appoint a tax representative by foreign real estate companies
Foreign real estate companies will be obliged to appoint a tax representative in Poland (similarly to VAT taxpayers from other countries than members of the European Union). It should be noted that the obligation will also apply to real estate companies from other EU Member States. The tax representative will be jointly and severally liable with his/her real estate company for tax liabilities. Failure to appoint a tax representative by such a company will be subject to a penalty in the amount of up to PLN 1 million.
- Tax strategy - public disclosure obligation
Taxpayers whose revenues exceed the equivalent of EUR 50 million and real estate companies will be obliged to prepare and to publish on their websites a so-called tax strategy. The document should include, among other things, a description of the procedures related to the performance of ongoing tax obligations, information on transactions with related entities, planned and implemented restructuring procedure, submitted applications for individual tax rulings and the taxpayer’s settlements in countries applying unfair tax competition.
The failure to comply with the obligation will be subject to a fine of up to PLN 1 million.
- Increase in the amount of income entitling to CIT rate of 9%
The bill implies an extension of the limit of revenue that entitles one to apply a 9% tax rate (instead of 19%). Under the current legal regime, this limit is EUR 1.2 million. It is proposed to increase this limit to EUR 2 million.
- Extension of the exemption from building tax
The legislative bill includes the extension of the building tax exemption until the end of the month in which the state of epidemic is cancelled (if it lasts longer than until the end of 2020). The current regulations provide for such an exemption from building tax for the period from March 1, 2020 to December 31, 2020.
If interested, please do not hesitate to contact us to discuss the details of the proposed changes.
Marcin Sobieszek, Tax Advisor, ATA Tax Sp. z o.o.
Interested in the subject?