Major changes in Polish CIT - what consequences will they bring for you?

1. #Taxes 2021
– what changes await
your business?
October 27, 2020

2. PwC
In a moment ...
Planned changes in the
Polish CIT law in 2021
Senior Manager
Michał Małkiewicz
Senior Manager
Marcin Jaworski

3. Planned changes in Polish CIT
law in 2021
#taxes2021
Senior Manager
Michał
Małkiewicz
Senior Manager
Marcin
Jaworski

4. PwCPwC
Agenda
Taxation of limited partnerships
Estonian CIT
Special investment fund - an alternative to the Estonian CIT
Real estate companies - revised definitions
Taxation mechanism on the sale of a real estate company
Real estate companies - additional obligations
Obligation to prepare and publish a report on the implementation of the
tax strategy
Relief for robotization
Other planned changes
1
2
3
4
5
6
7
8
9

5. PwC
Taxation of limited partnerships
• It is planned to include limited partnerships with their registered
office or management board in the territory of Poland in the
material scope of CIT.
• Currently, it is assumed that the regulations will apply from May 1,
2021, but the taxpayer can decide whether the limited partnership
will obtain the CIT taxpayer status in the period January - May
2021.
• Taxation of limited partners being a natural persons to be the same
as taxation of shareholders of capital companies.
Project assumptions
• The draft provides for the exemption of an amount corresponding
to 50% of revenues obtained by a limited partner from the share
in the profit of the limited partnership, but not more than PLN
60,000. The exemption will not apply to limited partners related
to a general partner.
• The general partners of limited partnerships shall be entitled to
deduction from the income tax (calculated on the income from
the share in the profit of the limited partnership), the amount of tax
paid by the partnership, proportionally charged to the general
partner's profit achieved from share in such partnership.
Exemptions

6. PwC
Estonian CIT
Pursuant to the project of amendments to the Corporate Income Tax Act and certain other acts, in 2021, the so-called
Estonian CIT will enter into force in Poland. According to the legislator, it is a modern taxation method that promotes
investments and minimizes formalities in tax settlement.
The draft Act is addressed to capital companies and cooperatives that meet the
following criteria:
• revenues do not exceed PLN 100 million gross,
• only natural persons are shareholders,
• do not have shares in other entities,
• apart from shareholders, employ at least 3 employees on the basis of an
employment contract (or incur monthly salary expenses in the amount of at
least three times the average monthly salary), and for small and new entities
there is a possibility of partial/gradual fulfilment of the condition,
• passive income does not exceed operating income,
• demonstrate the appropriate level of investment expenditure.
Who can benefit? What is it about?
• The project assumes no tax payment until the company's profit is maintained.
Tax will be payable in the event of profit distribution.
• Benefits for companies: greater resistance to recession, greater investment
capacity, increased productivity and innovation, time savings connected with
tax compliance.

7. PwC
Estonian CIT – a subject of taxation
Basic nominal tax rates will be:
• 15% for a small taxpayer (instead of the current 9%),
• 25% for other taxpayers (instead of the current 19%).
However, expenditures for investment purposes will allow
to reduce the above-mentioned rates by 5 percentage
points.
Net profit
Expenses not related to business activities
Hidden profits
Income from net profit
Change in the value of
assets
Income from undisclosed
business transactions
Earned during the tax period as a lump sum, intended for
payment or to cover losses arising before taxation in the
form of a lump sum
Monetary, non-monetary, paid, free of charge or partially
free of charge benefits, made in connection with the right to
the share in profit, other than distributed profit
In the case of a taxpayer who has ended lump sum
taxation
In the event of a merger, division, transformation of entities
or partial division by non-monetary contribution of the
enterprise or its organized part
The value of revenues and costs subject to be included, in
accordance with the AA, in the net profit (loss), which were
not included

8. PwC
Special investment fund - an alternative to the Estonian CIT
• A solution for taxpayers who meet the
conditions for the Estonian CIT, but
will not decide to switch to this system.
• The fund is an alternative for entities
that want to apply the existing
taxation rules and at the same time
benefit from tax preferences.
• The funds from the fund should be
allocated to investments not later than in
the next tax year from the date of the
write-off.
• The funds from the fund can be
allocated to investments within 3
years from the date of the write-off,
however, it is then necessary to develop
an investment plan, submit it to the tax
office and write-offs in accordance with
the plan.
• The use of the Estonian CIT excludes
the simultaneous use of the fund.
• Contributions to the fund must not come
from external financing.
• The fund will enable a taxpayer faster
tax settlement of depreciation of
fixed assets.
• The taxpayer will be able to include
deductions for the investment fund as
tax costs.
• Unlike when using an Estonian CIT, a
taxpayer retains the right to reliefs
(including R&D relief) and loss
settlement.
Who can benefit? What can be gained? Conditions

9. PwC
“Real estate clause” vs. definition of a real estate company
It sets conditions for classifying entities for which Poland may have
the right to tax income resulting from transactions on their shares,
rights, etc.
Applied in conjunction with double tax treaties.
Real estate clause
• Inclusion in the "real estate clause"
• New mechanism for paying tax on the sale of shares in real estate
entities
• Additional reporting/disclosure requirements
• Tax representative for foreign real estate companies
Real estate company

10. PwC
The “real estate clause” is applied together with an
appropriate double tax treaty
New wording of the “real estate clause”
income (revenue) from the transfer of ownership of shares (stocks) in the company,
all rights and obligations in a company that is not a legal person or participation titles in
an investment fund, collective investment institution or other legal person and rights of a
similar nature or from receivables resulting from the these shares (stocks), all rights and
obligations, participation titles or rights,
at least 50% of the value of the assets of such a company, a company that is not a
legal person, an investment fund, a collective investment institution or a legal person,
directly or indirectly, constitute real estates located on the territory of the Republic of
Poland or rights to such real estates.
AND
”real estate companies”

11. PwC
An entity, other than a natural person, obliged under the accounting act to prepare
a balance sheet in which:
Definition of “real estate company”
as at the first day of the tax year (in the case of entities starting their business):
(i) at least 50% of the market value of assets, directly or indirectly was the market
value of real estate located in the territory of the Republic of Poland or rights to such real
estate; and
(ii) market value of such real estate exceeded PLN 10 million.
on the last day of the year preceding the tax year (in the case of remaining entities):
(i) at least 50% of the balance sheet value of assets, directly or indirectly was the
balance sheet value of real estate located in the territory of the Republic of Poland or
rights to such real estate and
(ii) balance sheet value of such real estate exceeded PLN 10 million and
(iii) in the previous year at least 60% of income was earned from rental, sublease,
tenancy, leasing or sale of real estate.

12. PwC
Practical meaning of the „real estate company” status
• The obligation to settle capital gains tax on the transaction is
imposed on the real estate company (as a payer).
• Applicable when (i) the transferor of shares in real estate company
(or rights of a similar nature) is not a resident of Poland and (ii)
shares transferred represent at least 5% voting rights or profit
share.
• 19% tax on profit from transactions payable to the Tax Office by the
20th day of the following month; if the company does not know the
value of the transaction - 19% of the market value of the shares
• Potential application not only to sale, but also e.g. to redemption of
shares.
New tax collection mechanism

13. PwC
Practical meaning of the „real estate company” status
• A real estate company, as well as
taxpayers who directly or indirectly
own shares (or rights of a similar
nature) in such a company -
representing at least 5% voting rights
or profit share will be required to
provide the tax authorities with
information about entities directly or
indirectly holding shares in this
company and number of shares / rights
owned.
• Deadline: by the end of the third month
after the end of the tax year.
Obligation to appoint a tax representative
by real estate companies not having
their registered office or management
board on the territory of the Republic of
Poland.
Tax representative will act as a payer of
tax on behalf of real estate company
being jointly and severally liable for tax
liabilities.
It does not apply to companies subject to
income tax on their total income in the EU
/ EEA Member State.
Tax data of real estate companies
made public by the Ministry of Finance (in
the Public Information Bulletin).
The scope of disclosed information will
include:
• Revenue
• Tax-deductible costs
• Income / loss
• Tax due
Notification on
shareholders
Publication of tax data Tax representative

14. PwC
Obligation to prepare and publish a report on the
implementation of the tax strategy
• Taxpayers whose revenues exceeded
EUR 50 million in the tax year,
• Tax capital groups.
Taxpayers will have 9 months after the
deadline for submitting the annual CIT
return to publish a report on the
implementation of the strategy on the
website and submit relevant information to
the tax office
Who is subject and when?
• Approaches to processes and procedures for managing the performance of tax obligations
arising from tax regulations and ensuring their proper execution,
• The amount of information on tax schemes (MDR) provided,
• Transactions with related entities, the value of which exceeds 5% of the balance sheet total of
assets,
• Carrying out settlements in countries that apply harmful tax competition,
• Restructuring activities planned or undertaken by the taxpayer,
• Submitted applications for a tax interpretation, binding rate information (WIS) and binding
excise information (WIA),
• Voluntary forms of cooperation with the bodies of National Tax Administration (e.g. under the
Agreement on cooperation with the Head of the National Tax Administration).
The above catalogue is an open catalogue, and the report itself is to be prepared taking into
account the nature, type and size of the business activity conducted.
What information is concerned?

15. PwC
Relief for robotization
• According to the
announcements, the relief
would come into force on
January 1, 2021.
• Currently, it would probably
be the third quarter of 2021.
Entry into force
• Incurring investment costs for the
robotization of the enterprise
• Deduction of 50% of tax
deductible costs from income tax
(PIT and CIT)
• It applies to all enterprises, with
no restrictions on size or industry
Assumptions
• Purchase/leasing of new robots/
cobots
• Purchase of software
• Purchase of accessories (e.g.
motion sensors)
• Purchase of health and safety
equipment
• Expenditure on training for
employees
Costs
• Similar restrictions as the
R&D/IP BOX relief
• Potential restriction in
combination with the
exemption from the SEZ/PSI
• Costs incurred by the end of
2025
Restrictions

16. PwCPwC
Other important changes
• Changes in the definition of used fixed assets (for which individual tax depreciation rates
can be applied) - according to the new regulations, a fixed asset may be considered a used
fixed asset only if it can be evidenced that prior to its acquisition it was used by another
taxpayer for at least 6 months and in the case of buildings and structures other than non-
residential - for at least 60 months;
• Limiting the possibility of increasing and reducing depreciation rates - the restriction
applies to fixed assets used by taxpayers in activities, the income of which is exempt
from income tax - during the period of using such an exemption.
Restrictions on the possibility of changing depreciation rates
The draft provisions provide for extension of the exemption from the minimum tax on
commercial real estate in the period from March 1, 2020 to December 31, 2020, as well as in
the event that the epidemic state announced in connection with COVID-19 continues to be
effective after December 31, 2020 from 1 January 2021 by the end of the month in which
the state of the epidemic will be revoked.
Extension of the exemption from the minimum tax on commercial real estate

17. PwCPwC
Other important changes
Pursuant to the draft provisions, when determining the taxable income, the taxpayer's losses
are not taken into account if the taxpayer acquired another entity or the taxpayer acquired
an enterprise or an organized part of an enterprise, including by way of contribution, or the
taxpayer received a cash contribution for which the enterprise or organized part of the
enterprise was acquired, as a result of which:
• the subject of the actually conducted by the taxpayer core business activity after such
acquisition or purchase, in whole or in part, was different from the subject of the actually
conducted by the taxpayer core business activity before such acquisition or
purchase, or
• at least 25% of the taxpayer's shares (stocks) are owned by an entity or entities that did not
have such rights at the end of the tax year in which the taxpayer suffered such loss.
Limitations in settling tax losses
According to the draft, the revenue limit entitling to the reduced 9% CIT rate is increased from
EUR 1.2 million to EUR 2 million.
Increase in the income limit which allows application of a reduced CIT rate of 9%

18. PwCPwC
Other important changes
The draft amending bill clarifies Article 14a of the CIT Act, indicating that distribution of assets
in-kind (i.e. in a non-cash consideration) to the shareholder/s by a taxpayer within its
liquidation procedure is also subject to CIT taxation under the principles set out in this
provision. So far, this issue has remained debatable between tax authorities and administrative
courts.
If the taxpayer, by performing a non-monetary benefit, regulates the liability in whole or in part,
including for a loan (credit), dividend, redemption or sale for the purpose of redemption of
shares (shares), division of the assets of the company or cooperative being liquidated between
shareholders, the income of such a taxpayer is the amount of the liability settled as a result of
afore-mentioned performance.
Taxation of the release of liquidation assets in kind

19. PwC
Planned changes in withholding tax
• Changes to the beneficial owner definition,
• Limiting application of the WHT-refund mechanism to passive payments (dividend, interest, royalties),
• Limiting application of the WHT-refund mechanism to related parties,
• Exclusion of dividends paid to Polish residents from the WHT-refund mechanism,
• Clarifying the due diligence requirements in the payment recipient verification process,
• Extending the scope of the opinion on the application of the WHT exemption (also to the preferences under the Double Tax Treaties),
• Change in the method of signing the payer's WHT statement (it should be possible to sign the declaration by persons with the status of the head of
the unit, while maintaining the principles of representation - but without the possibility of signing the declaration by a proxy),
• Extension of the validity period of the existing opinions on the application of the WHT exemption (36 months from 1 January 2021),
• Finalizing the WHT tax explanations (planned date: the first half of 2021).
Pre-consultations were conducted by the Ministry of Finance on changes to the withholding tax (WHT) regulations, which are to be
introduced as of 2021. Changes are planned, among others, in the following areas:

20. PwC
Which of the planned amendments t0 Polish CIT Law as of
2021 will have the greatest impact on your business?
A. CIT taxation of limited partnerships,
B. Introduction of so called “Estonian CIT”,
C. Changes in definition of real estate company and change in taxation of real estate
companies,
D. Obligation to prepare and publish a report on the implementation of the tax strategy,
E. Relief for robotization,
F. Other planned changes.

21. PwC
Thank you for attention
+48 502 184 838
marcin.jaworski@pwc.com
Marcin Jaworski
+48 519 504 605
michal.malkiewicz@pwc.com
Michał Małkiewicz