As usual, in December, entrepreneurs think about how much the changes in the regulations that will come into force from January of the new year will affect their tax settlement and operations. To make it easier for you to find yourself in the maze of regulations introduced by the new Polish Deal (and not only), we have prepared a quick summary. Here are the most important changes in the law that will affect doing business in Poland in 2023.
New Polish Deal – version 3.0
From 1 January, 2023, the next edition of the Polish Deal will come into force. Taxable persons are facing major changes in the corporate income tax. It should be emphasised, however, that the new Polish Deal did not wait for the new year! Some of the changes provided for in the amendment to the CIT Act entered into force in October 2022 – some of them even apply retroactively.
Minimum tax exemption and end of hidden dividends
The amendment to the CIT Act introduced an exemption from the minimum tax, which will be in force until the end of next year. This means that taxable persons will not pay the minimum tax for 2022 and 2023.
In addition, the provisions of the tax law concerning the hidden dividend and which were to enter into force on 1 January, 2023, were repealed.
Changes in withholding tax (WHT)
Among the changes to the CIT Act, in force from 26 October, 2022, there was a correction of the provisions regarding the WH-OSC statement. The taxpayer must submit this document to the tax office no later than by the last day of the second month following the month in which he exceeded the limit of PLN 2 million for payments subject to this tax and made to a related entity.
The new rules extend the validity period of the WH-OSC. Thanks to this change, the payer will be able to use preferential methods pf calculating withholding tax for a longer period of time – until the last day of the tax year in which the tax office received this declaration.
Changes in transfer pricing
The amendment, which affected the provisions of the CIT Act, also introduced changes in the field of transfer pricing – additionally with retroactive effect. The legislator repealed the regulations on indirect offshore transactions and clarified the scope of TPR’s obligations with regard to transactions with entities from tax havens.
When the Act was amended, the documentation thresholds for direct haven transactions (both those concluded with related and unrelated entities) were raised. Currently, the limit value is up to PLN 2,500,000 for financial transactions and up to PLN 500,000 for other transactions. These changes are also retroactive.
A new way of calculating debt financing costs
With retroactive effect – and more precisely from 1 January 2022 – the change introduced by the Polish legislator in the method of determining the limit for the deduction of debt financing costs applies. According to the amendment, the surplus over the higher of the following amounts: PLN 3,000,000 or 30% of the so-called taxable EBITDA.
Amendment of the Estonian CIT
The amendment to the Estonian CIT provides for a change in the rules for determining income in the scope of a lump sum on the income of companies. The new Polish regulation will apply to the use of assets – both for business and other purposes.
The legislator also clarified the provisions on the expiry of the liability due to the initial adjustment – clearly specifying that the tax liability due to the initial adjustment expires after exactly 4 years of uninterrupted lump-sum taxation. In addition, in accordance with the amended wording of the regulations, the deadline for payment of tax on income from transformation will expire at the end of the third month of the first year of taxation with a lump sum on income of companies.
Changes in the structure of the tax on shifted income introduced by the new Polish Deal
On 1 January, 2023, significant changes regarding the rules for settling the tax on shifted income come into force. In the amendment, the legislator clarified that this tax applies to entities earning passive income based outside Poland. The change in the regulations includes a new definition of shifted income and clarification of two conditions: the conditions for preferential taxation of a related entity and the conditions for 50% of passive income.
The new provisions on taxation with shifted income tax also call for the introduction of a new premise. According to it, it will be necessary for the related entity for which the costs are incurred to transfer at least 10% of qualified revenues to another entity:
- therefore including expenses as costs settled for income tax purposes or deducting these expenses or revenues from income, tax base, or tax in any form,
- if these revenues constitute profit intended for payment, regardless of the date, in the form of dividends, or other revenues from participation in the profits of persons.
Other modifications of this tax law include changes in the scope of tax-transparent affiliated entities, definition of the taxable base for shifted income tax, official recognition of a capital group as a taxpayer, as well as clarification of the scope in which the shifted income tax may be reduced by the withholding tax collected.
Not only changes in income tax – i.e. SLIM VAT 3 and modifications to the tax on goods and services continued
Changes in tax regulations will not be limited only to income taxes. In the course of the legislative process, there is also a considerable amendment to the Act on tax on goods and services. Initially, it was assumed that it would enter into force on 1 January, 2023, however, due to the postponements, the currently planned date of application of most of the new solutions is 1 April, 2023.
The new limit of the small taxable person
SLIM VAT 3 assumes an increase in the turnover limit in the definition of a small taxable person. In 2022, the status of a small taxable person was held by entities whose turnover for the previous year (including tax) did not exceed EUR 1.2 million. Now this limit is to be EUR 2 million.
Currency exchange rates for corrective invoices organised as part of the Polish Governance
The VAT Act will clearly specify which conversion rate the taxable person should use for correcting invoices in a situation where the original invoice was issued in a foreign currency.
So far, this issue has not been regulated by the provisions of the tax law, so it raised doubts among entrepreneurs. After the entry into force of SLIM VAT 3, the same conversion rate will be used for correcting invoices as for the original invoice – regardless of whether the tax base has been reduced or increased. However, the legislator introduced an exception in this case for a collective corrective invoice issued due to a price reduction or discount.
Changes in the settlement of intra-community supplies of goods
In order to demonstrate ICS with the 0% rate, the Polish taxable person must have documents confirming the right to apply this preferential rate.
When obtaining the documentation is delayed, the entrepreneur is obliged to demonstrate this transaction with the domestic rate, and only after receiving the relevant documents should he show the ICS in the settlement for the period in which the delivery was made. The amendment to the VAT Act introduces a rule according to which the taxable person will have the right to show or correct the ICS in the declaration submitted for the period in which the tax obligation arose. According to the legislator, this will simplify the obligation to correct this transaction.
Settlement of intra-community purchase of goods without an invoice
Polish taxable persons currently have the right to deduct VAT on intra-Community acquisition of goods - provided that they receive the invoice within three months from the end of the month in which the tax obligation arose in relation to the purchased goods. If this deadline is not met, taxable persons are obliged to reduce the amount of input tax..
However, the amendment to the VAT Act provides that entrepreneurs will have the right to deduct input tax resulting from the WNT also when they do not receive an invoice. Possession of this document will therefore cease to be a formal condition for deducting the amount of input tax resulting from the WNT.
New rules for applying proportions
Among the planned changes is the elimination of the obligation to agree with the head of the tax office on the proportion forecast or the pre-ratio forecast in the form of a report. This is important information for entities that make both taxable and exempt sales. Instead of agreeing on the proportion or pre-factor with the head of the tax office, the taxable person will submit a notification to the head of the tax office - which is supposed to make the procedure less formal.
As a result of the changes in the provisions on the proportion, the total non-deductible amount of input tax will increase, allowing for the assumption that the proportion exceeding 98 percent is 100 percent – it will be an amount of up to PLN 10,000.
Moreover, the taxable person will not be obliged to correct VAT at the end of the year if the difference between the preliminary and final proportion does not exceed 2 percentage points - and also when the final proportion is lower than the preliminary proportion and the input tax, which is not subject to deduction and resulting from the difference between these proportions and the long-term adjustment will not exceed PLN 10,000.
Additional tax liability
We can talk about major tax changes in the case of provisions on additional tax liability. The tax office imposes this obligation on the taxable person if, for example, he overstated the VAT refund or understated the tax liability.
First of all, the sanctioning rate of 100% will be reserved for cases where the taxable person knowingly participated in the fraud.
The head of the tax office will decide on the amount of sanctions, and the current rates of the additional tax liability will be their upper limit. What does it mean? Where the Act currently provides for a tax rate of 15%, the term "up to 15%" will be introduced. The same change will apply to other rates.
Contrary to plans, the obligation to issue an advance invoice is still valid
The original draft of SLIM VAT 3 assumed that taxable persons would no longer be required to issue an advance invoice - provided that the delivery of goods or services was made in the same settlement period. Entrepreneurs would then not have to issue both advance and final invoices in the same settlement period.
However, the legislator withdrew from this idea and this proposal is not included in the current draft amendment.
Family Foundations Act
In the last days of November 2022, the government draft of the act on family foundations awaited by entrepreneurs was submitted to the Polish Parliament. According to the current wording of the draft, the act would enter into force within 3 months from the date of its publication. This means that if further work on it goes smoothly, it has a chance to enter into force in 2023.
The provisions of the act on family foundations are intended to be a remedy for the existing problems related to succession in family businesses (of which, according to the estimates quoted by the authors of the draft act, there are nearly 830,000 in Poland). The draft therefore regulates the organisation and functioning of a family foundations, including the rights and obligations of the founder and the beneficiary. In addition, the Polish government also proposes changes to the right to a reserved share and the taxation rule in connection with the establishment, operation and dissolution of a family foundation.
The draft law on family foundations is one of the most awaited legal acts in 2023. Unfortunately, whether the Polish legislator will be able to introduce the regulations next year - and to what extent they will prove to be an effective response to the problems of family businesses - as usual, only practice will show.
Changes in domestic and cross-border reorganisation of companies
Another Polish legal act that is important for entrepreneurs is the draft act amending the Code of Commercial Companies in the field of mergers, transformations, and divisions of commercial companies.
According to the current content of the draft, the regulations would come into force to a large extent from 31 January, 2023, and in the remaining scope from 1 August, 2023. The proposed changes result from the obligation to implement EU directives in Poland under the so-called company law package. The changes provided for in the draft relate to increasing the possibilities of transformation of Polish companies, e.g. by introducing analogous solutions to those provided for in cross-border procedures. The discussed amendments to the regulations will therefore introduce simplified mergers, a new type of division of the company (division by spin-off) and grant full merger and division capacity to a limited joint-stock partnership. The Polish legislator will also introduce a uniform legal framework for cross-border transformations and divisions into the Commercial Companies Code.
Prohibition of public offering to purchase shares in a limited liability Company
From 11 November, 2023, a small but significant change to the Commercial Companies Code will come into effect, according to which it will be prohibited to offer the purchase of shares in a limited liability company to an unspecified addressee, as well as to promote the purchase of shares in such a company by directing advertising (or activities constituting another form of promotion) ) to an unspecified addressee.
Therefore, the provision will also cover forms of encouraging potential investors to make investments other than advertising, provided that these incentives can lead to an investment decision. Violation of the ban will be punishable by a fine and restriction or imprisonment. However, the company will still be able to raise capital for development, e.g. by issuing bonds or taking out a loan using crowdfunding as the owner of the project.
These provisions are intended to prevent the sale of shares in limited liability companies using the services of unsupervised entities that could publicly promote the acquisition of such shares using internet portals that perform a similar function to platforms operated by crowdfunding service providers.
Postponement of the obligation for companies entered in the National Court Register to have an address for electronic deliveries
Although the introduction of the obligation for companies entered in the National Court Register to have an address for electronic service, as planned for 2022 has not taken place, the legislator does not withdraw from this idea.
The obligation proposed by the Polish legislator is intended to revolutionize official deliveries - the address for electronic deliveries will be used to send official official correspondence, with the effect equivalent to a registered letter with acknowledgment of receipt. The legislator has not yet indicated the specific date of entry into force of this new obligation, but, according to the current assumptions, it would take place in the coming year 2023 and be preceded by an appropriate official announcement...