Running a business in Poland is inseparably connected with the obligation to pay taxes. The system of public and legal obligations in our country is quite complex, changes frequently and, in addition, individual taxes may overlap. What taxes are paid in Poland? Check out the most important information!
What is the taxation of business activity in Poland?
While for non-entrepreneurs the taxation system is straightforward (often involving only PIT according to the tax scale), entrepreneurs find themselves in a more complicated situation. Individual taxes may overlap – e.g. taxation of a limited liability company at CIT level and dividends paid to shareholders at PIT level. They may also occur at different rates, e.g. services taxed at a different flat rate.
Acting in accordance with the law, it is possible to use many of the mechanisms available to reduce tax liabilities, e.g. through allowances and exemptions, entity conversions or opting for flat-rate taxation of companies (the so-called Estonian CIT). Let us take a look at the various taxes in Poland from the point of view of business activity.
Types of tax in Poland – what taxes are paid in Poland?
- PIT and CIT income taxes,
- VAT,
- Excise duties,
- Inheritance and donation tax,
- Tax on civil law transactions,
- Real estate tax
Income taxes PIT and CIT
Income taxes comprise tax on natural persons (PIT) and tax on legal persons (CIT).
Personal Income Tax (PIT) in Poland
As far as PIT income tax is concerned, it is paid by all entrepreneurs running a sole proprietorship. Currently, the legislation allows the following forms of taxation to be selected for sole proprietorship (jednoosobowa działalność gospodarcza):
- general rules, meaning the tax scale (12%/32%);
- lump-sum tax on registered income;
- flat tax (19%);
- tax card (to a residual extent, no longer available to new entrepreneurs).
The tax rate and the range of available reliefs depend on the choice of the form of taxation. PIT is also paid by shareholders of partnerships composed exclusively of natural persons. It is also paid by shareholders of capital companies who receive benefits from the company, e.g. in the form of dividends or remuneration for non-monetary benefits.
If the company’s shareholders do not reside in Poland, they pay PIT only on income earned in the territory of the Republic of Poland. Tax residency may be said to exist if an individual:
- stays on the territory of Poland for more than 183 days in a tax year;
- has a centre of interest in Poland.
It should be noted that separate rules in this respect may be set forth in double taxation treaties.
Corporate income tax (CIT) in Poland
Corporate income tax is payable by:
There can only be two rates of CIT. As a rule, it is 19%. Entities with the status of small taxpayers, whose revenue in the tax year did not exceed EUR 2 million, may benefit from a preferential rate of 9%. In the case of CIT, it is possible to take advantage of a whole range of discounts that effectively reduce taxation.
Value-added tax (VAT) in Poland
Value added tax generally applies to all entrepreneurs, unless they are entitled to an exemption:
- subjective – the company’s turnover in a given tax year did not exceed PLN 200 thousand gross;
- subjective – selected types of business activity are exempt from VAT regardless of revenue.
On the other hand, the VAT Act lists a number of businesses that must pay VAT ‘from the first zloty’, regardless of the financial result at the end of the financial year. Note that a number of transactions, such as mergers and acquisitions or the disposal of a business or an organised part thereof, are not subject to VAT.
The basic VAT rate is 23%, but preferential rates such as 8%, 5% or 0% are provided for selected categories of goods or services. Although the base VAT rate in Poland is quite high, entrepreneurs have the possibility to use the mechanism of reducing output VAT by the value of VAT charged at previous stages of trade.
Excise duties in Poland
Excise duty is an indirect tax applied to, among others, energy products, electricity, alcoholic beverages and tobacco products. The minimum excise duty rate for each good is derived from Community legislation, but the national legislator may increase it.
Excise duty may be paid by the company operating the warehouse where the goods in question are produced, processed or stored, or from or to which they are shipped.
Inheritance and gift tax in Poland
Polish legislation does not provide restrictions on the entities that can enter into a donation agreement which means that a company can be both the recipient and the donor. From a tax point of view, the receipt of a donation does not give rise to VAT consequences, but obliges the company to pay CIT.
While in the case of a sole proprietorship or civil partnership, one can still talk about tax groups and the associated exemption, if the giver is a commercial company, the tax will have to be paid in full. The receipt of a tax-free benefit must be identified in the accounts as income, although the value of such a benefit may be determined differently depending on what was the subject of the gift.
Significantly, the tax will not be paid by the shareholders; the obligation in this respect rests solely with the company. Inheritance and gift tax is a local tax.
Tax on civil law transactions in Poland
Another type of tax that entrepreneurs face is the tax on civil law transactions, commonly referred to as PCC. The enumerative list of activities that oblige the taxpayer to pay PCC includes, among others:
- conclusion of a partnership agreement (the amount of tax is calculated on the value of the contributions made);
- conclusion of a loan, sale or exchange agreement;
- establishment of a paid usufruct or easement;
- establishment of a mortgage.
Importantly, the obligation to pay PCC arises again if the tax base is increased. Such a situation will be, for example, an increase in the share capital of a company, with the proviso that it will be possible to obtain an exemption from civil law transaction tax if certain conditions are met.
Real estate tax in Poland
Real estate tax is levied on land, buildings or parts thereof, as well as structures, if they are connected with the conduct of business activity. The real estate tax is local in nature, which means that it is levied by local municipalities and not by the State Treasury. Tax rates are not uniform, but depend on the location of the property and range from 1% to as much as 25%. The obligation exceeding PLN 100 can be spread into 4 instalments payable quarterly.
Is it legally possible to reduce taxes in Poland?
Entrepreneurs have the possibility to take advantage of various reliefs and exemptions in order to reduce, postpone or even avoid the obligation to pay tax. This is particularly evident in the case of income taxes PIT and CIT, which provides for, among others.
- the IP BOX relief
- R&D relief;
- relief for robotisation;
- prototyping relief;
- pro-growth relief.
The lump-sum taxation of companies’ income (the so-called Estonian CIT) is also a frequently used solution by CIT taxpayers. It allows profit to be reinvested without being taxed until it is paid out, e.g. in the form of dividends. This allows the taxpayer to grow the business faster.
When is it worth applying for a tax interpretation?
Analysing the legal situation of a taxpayer is a complex task that requires a comprehensive assessment of business activity. Sometimes, however, the regulations do not provide an unambiguous answer to the questions asked.
When in doubt, it is possible to apply to the Director of the National Tax Chamber for an individual tax interpretation. It is binding in a specific case and protects the taxpayer from negative consequences of planned actions. When formulating an enquiry within a request for an interpretation, it is necessary to maintain precision in the description of individual elements of the factual state, and to present the taxpayer’s position in the case.
The tax system in Poland is not one of the simplest. The regulations in force are overlaid by KIS interpretations, guidelines of the Ministry of Finance and rulings of administrative courts and the Supreme Administrative Court. Entrepreneurs who are considering the use of tax optimisation or need assistance in the ongoing identification and settlement of public and legal debts should consider using the support of professionals. Linke Kulicki Law Firm has been supporting clients with tax advisory matters for many years. In our team, we have lawyers who are able to use the knowledge they have acquired and efficiently navigate between complex regulations, often raising doubts even among experts.