Rules of CIT taxation
Taxation by corporate income tax of legal persons is regulated by the Corporate Income Tax Act.
The taxpayer is obliged to keep accounting ledgers under the conditions laid down in the Accounting Act.
The standard corporate income tax rate is 19%.
A reduced CIT rate of 9% is applicable to small taxpayers earning revenues (inclusive of VAT) equivalent to EUR 1.2m or less and for taxpayers starting a new business for their first tax year in operation
According to the Corporate Income Tax Act, the following entities are taxpayers of the corporate income tax:
- legal persons (companies formed under Commercial Companies Code)
- unincorporated organizational units with the exception of unincorporated partnerships, though including companies in organisation and limited joint-stock partnerships having their registered office or management board located within the territory of the Republic of Poland
- tax groups of companies (groups of at least two incorporated commercial law companies bound by ties on the capital level and meeting the requirements provided for in the Act)
- unincorporated companies having their registered office or management board abroad, if they are regarded as legal persons according to the law of that foreign country, and are subject to taxation in that country, on their entire income, irrespective of the place where the income is generated
If taxpayers have their registered office or management board in the territory of Republic of Poland, they are subject to taxation, irrespective of place where it was generated (unlimited tax liability). If taxpayers do not have their registered office or management office within the territory of Poland, they are subject to tax only on the income which they earn within the territory of the Republic of Poland (limited tax liability).
Object of taxation
The object of the corporate income tax is the income regardless of the kind of revenue sources from which it has been achieved [with the exception of revenue from participation in the profits of legal persons (e.g. dividends) and revenues of foreign operators in respect of the royalty payments (e.g. interest) - in this case, an object of taxation is income (Article 10 and 21 of the CIT)].
The act contains a list of tax exemptions (Article 17 of the Law on corporate income tax), including taxpayers such as associations, societies, foundations that realize socially useful purposes. In the case of those taxpayers tax exemption relates to revenues which are laid down in the act for the purpose of socially useful. These objectives must coincide with the statutory objectives of the activities of those bodies.
Tax revenues are in particular received money, cash value, an exchange difference or the value of goods received free of charge or partly in return, rights or other benefits (Article 12 of the Law on corporate income tax). Revenues connected with an economic activity are also deemed to be receivable income, even if not yet actually received (the principle of accrual-based income), after excluding the value of returned goods and granted discounts.
In determining the date of commencement of revenue, a general rule is that income is payable on the date of release of goods, sale of property or provision of services, including partial execution of services not later than the day: of issuance of an invoice or settling the claims.
In the case of the services settled in settlement periods income arises on the last day of the accounting period specified in the contract or invoice (and no less than once a year). This solution is also used to determine the date of commencement of income from the supply of electricity, heat and natural gas distribution system.
With regard to revenue, which these measures do not apply to, the tax provisions stipulate that the date of such revenue is the day of receipt of payment.
Tax deductible costs
The legislator has not set a closed list of expenditure which belong to tax-deductible costs (as in the case of PIT tax). The pursuit of economic activities relates to the unlimited scope of economic events. Establishing an exhaustive list of expenses incurred is not practically possible. Therefore, the legislator specifies general characteristics which must be satisfied in order for taxpayer's expense to be regarded as a deductible expense, it must have the following characteristics:
- is borne by the taxpayer and not by another person (as a rule, the actual payment does not matter but incurring cost i.e. issuing of invoice in the accounts),
- the aim of bearing the cost was achieving revenues, maintenance or securing sources of revenues,
- the cost is not mentioned in the list of costs which do not constitute tax deductible expenses.
Tax-deductible costs also include depreciation write-offs. Depreciation applies only to intangible assets, i.e. buildings, structures, machinery, means of transport, foreign investment in fixed assets and property rights, such as: licenses, copyright, industrial property rights and know-how, development costs.
Generally, taxpayers make depreciation write-offs from the initial value of fixed assets, in equal instalments monthly, quarterly or once at the end of the tax year (subject to the degressive method).
Tax-deductible costs also include lease payments, and the provisions of the act make tax settlements depend on the terms of such an agreement.
Allowable deductions from the tax base (income)
In order to reduce the tax the taxpayer may deduct from taxable income:
- donations made to the benefit of public organisations (max 10% of income),
- donations for the purposes of worship (10 % of income); if the taxpayer gives donations to both of these objectives the total deduction may be made only up to a limit of 10 %,
- in the banks loans waived in connection with restructuring (20 % of such loans),
- donations to the Church for charity objectives (without limit),
- the acquisition of new technology (50 % of expenditure).
In addition, if the taxpayer has incurred a loss in a given tax year, it may be settled (deducted from the earned income) in the next five tax years (in a given year, however, may not include more than 50 % of the loss).
Permissible tax deductions
Provided that a tax payer has paid the tax on dividends (profit paid by a capital company to its shareholder), he/she may reduce the tax due by its value.
Recording and reporting obligations
In principle financial year (tax) is a consecutive 12 months; In the case of legal persons, the tax year does not have to correspond to the calendar year; in some cases it may be shorter or longer than 12 months.
Taxpayers and payers do not submit tax returns during a tax year but are obliged to monthly (in specific cases quarterly) pay advance payments by the 20th day of the following month/quarter following the tax settlement period.
Annual tax return
Taxpayers have to submit an annual tax return to the tax office on income earned (loss) generated in the tax year up to the end of the third month of the subsequent financial year.
Within the same time limit, the tax payer is obliged to pay the tax due or the difference between the tax due from income shown in the tax return and the amount of outstanding advances for the period since the beginning of the year (Article 27 of the Law on corporate income tax). The report is submitted on the form of CIT-8 tax together with the required attachments.
At a later stage to the form of CIT- 8, the taxpayer must attach the financial statements i.e. balance sheet, profit and loss account and additional information. The financial statements should be drawn up until the end of the third month of the new financial year, subsequently approve them by the competent authority e.g. board, general meeting and forward it to the tax office within 10 days from the date of approval by the competent authority.
In addition, the tax payer is obliged to submit financial statements to the National Court Register within 6 months from the start of a new financial year.