Minimum income tax returns

On January 1, 2024, the minimum corporate income tax provisions of Article 24ca of the CIT Law will begin to apply.

Therefore, we are starting a series of publications in which we will introduce the assumptions of minimum income tax and indicate how to determine whether it will apply to a particular organization and, ultimately, if so, in what amount.

As for now we explain what the minimum income tax is and which entities may be subject to it.

Introduction, suspension and… amendment

At the outset, it is worth noting that this is not the only minimum tax you may have to deal with.

In fact, the minimum tax on buildings has been in effect for several years. On January 1, 2024, regulations on a global minimum tax – a compensatory tax called Globe – will take effect.

Meanwhile, the so-called national minimum income tax, also referred to by some as a tax on loss, is part of the changes proposed by the so-called Polish Deal, which went into effect on January 1, 2022.

Although the application of this provision has been suspended, it has already  amended by modifying the calculation of loss and profitability levels. The catalog of entities excluded from minimum taxation has also been expanded.

Therefore, it is important to keep in mind that the tax simulations of several years ago may no longer correspond to the rules that have changed since January 1, 2023.

For which period is the first minimum tax due?

The first year for which the minimum tax will be due is 2024 – however, we take into account that the rules may be postponed. Nevertheless, as of the date of this article, no bill or regulation has been published or at least announced.

Taxpayers with a tax year other than the calendar year will calculate the first minimum tax for the year that began between January 2, 2023 and January 1, 2024.  

Tax rate

The tax rate will be 10% of uniquely established tax base.

The main premises leading to the minimum tax for Polish residents

The 10% minimum tax will apply to companies with Polish tax residency and domestic tax groups that in the tax year:

1. incurred a loss from a source of income other than capital gains, or
2. achieved less than 2% of profit from a source of income other than capital gains in income other than capital gains.

Tax regulations provide special rules for determining a loss for minimum tax purposes, which means that a accounting loss does not necessarily result in minimum taxation.

Not only Polish residents

Those taxpayers who, although they do not have Polish residency, conduct their business through a foreign permanent establishment located on Polish territory must also bear in mind the new regulations.

In the absence of specific regulations, a foreign permanent establishment should be understood in accordance with the general legal definition, i.e. as:

• a permanent establishment through which an entity having its seat or management in the territory of one country performs its activities in whole or in part in the territory of another country, in particular a branch, representative office, office, factory, workshop or place of extraction of natural resources,
• construction site, construction, assembly or installation, carried out in the territory of one state by an entity having its registered office or management in the territory of another state,
• a person who, in the name and on behalf of an entity having its seat or management in the territory of one state, acts in the territory of another state, if this person has a power of attorney to enter into contracts on its behalf and actually exercises this power of attorney.

This concept may be modified by the provisions of a particular double taxation treaty to which Poland is a party.

Deadline for payment of minimum income tax?

Income taxpayers with a tax year equal to the calendar year will pay the minimum income tax for the first time by March 30, 2025.

Taxpayers with a tax year other than the calendar year will pay the minimum income tax at the end of the 3rd month after the last month of the tax year that began before January 1, 2024 (i.e., by the deadline for filing their CIT-8 return).

Nevertheless, it is already worth looking at the regulation so as to prepare in advance for a possible new tax. It may be necessary to separate accounts  in your accounting system so that you can check whether you are subject to the minimum tax regulation in a quicker and clearer way.

Minimum income tax is payable once – at the end of the year. There is no obligation to make advance tax payments during the tax year.

Four steps to tame the minimum tax

Determining whether a company has circumstances that result in a minimum tax can be quite a challenge. That’s why MDDP has prepared tips to help you sort out what you already know about minimum tax.

In our opinion, the diagnosis of the situation should be based on four steps, which, taken in the order indicated, can exclude the possibility of taxation at an early stage or, in the case of  negative verification, facilitate the calculation of the tax base and the amount of tax due,:

1. assessment of whether the entity is subject to statutory exclusion from minimum taxation;
2. calculation of whether the amount of loss incurred or income earned results in minimum tax:
3. calculation of the tax base taking into account statutory adjustments and deductions,

4.schosing the method of determining the tax base and determining the amount of minimum income tax to be paid.

We will discuss the above steps in future publications, which we invite you to read now.