Changes ahead for Polish tax legislation from 2022

Within the frames of the so-called Polski Ład (Polish Order), a complex new legislation was proposed with respect to international tax affairs and foreign investments in Poland. It will, generally, come into force on January 1 2022. Some of the changes include:

• It shall be presumed that companies having Polish board or supervisory board members are Polish tax residents;
• Controlled foreign companies (CFC) rules will be tightened and extended (including rise of expected foreign effective tax rate to 14.25%);
• 19% diverted profits tax will be imposed on intangible expenses incurred from foreign taxpayers, if they are effectively taxed below 14.25% corporate income tax (CIT) rate and are further distributed as dividends;
• New conditions shall be set out for mergers, spin-offs, exchange of shares and other reorganisations in order to remain tax neutral;
• Liquidation of Polish tax transparent companies shall no longer be tax neutral if Poland loses its rights to tax liquidation assets;
• 19% exit tax shall be extended to cases of ‘international transformations’ (which may be interpreted, e.g. as cross-border mergers);
• Interest on debt financing of capital gains and profit-stripping expenses incurred for a benefit of related entities shall not be tax deductible;
• Anti-abusive regulations will be applicable to special economic zones and CIT exemption will expressly cover only income from a zone permit activity; and
• Apartments (including for business and rent) will not be allowed to be depreciated for tax purposes.

New incentives have also been proposed:

• Individuals moving their tax residency to Poland, may benefit from 200,000 zloty (approximately $51,363) annual flat tax rate on foreign income, subject to certain conditions (investing 100,000 zloty per annum in Polish sports/culture/science, among others);
• Research and development (R&D) and IP Box incentives may be used simultaneously;
• Conditions for CIT flat taxation (the so-called Estonian CIT) and tax groupings shall be relaxed;
• A CIT holding regime (100% capital gains and 95% dividend exemption) will be introduced for Polish corporations (10%/one year shareholding, substance of a holding and subsidiary entities and simple tier structures shall be among requirements but real estate companies will be excluded);
• New incentives (additional deduction from tax base) shall be made for robotics investments, development of new products, some expenses on increase of sales, acquisition of non-related companies and IPO process;
• VAT groups may be established; and
• Investment agreement may be concluded with tax authorities on application and interpretation of laws, including transfer pricing (regards investments over 100 million zloty.

Many of the above-mentioned draft regulations are vague and raise doubts as to their interpretation and being contrary with double tax treaties and European tax legislation.

One of the focus points of new legislation are WHT issues. Rules that will be amended were initially construed for 2019, but have been suspended ever since. This regards payments exceeding 2 million zloty per annum (summed for a particular recipient). The excess over that amount will be subject to a standard 19%/20% WHT rate. If a payment qualifies for an exemption or reduced WHT treaty rate, a recipient (or in cases of gross up clause a WHT remitter) can apply for a WHT refund.

Contrary however to prior regulations, the new regime shall be applicable only to passive payments (dividends, interest, royalties) made to related, non-Polish entities. Thus, service payments and other made to non-related suppliers (including royalties) shall not be covered by it.

There will be two methods to apply for a reduced WHT rate or exemption at source. One of them will require submitting a very special statement. Any incorrect information provided in the aforementioned statement may result in a 10–30% additional WHT fee, and potentially even personal penalties. The other is to obtain an advance ruling on WHT exemption/reduced rate issued by Polish tax authorities.

All new WHT procedures will be carried out in an electronic procedure. A number of additional documents will be required, including verification of foreign taxpayer’s substance and beneficial owner status.

The number of changes and short vacatio legis period (as usual in last few years) make it very difficult to adjust to the new legislation. Also, as the legislation is currently a draft, it might yet be subject to amendments, even major ones (although further changes are not expected to WHT).