Taxation in Poland
In addition to a strong international position and a stable economic environment, Poland attracts the attention of foreign entrepreneurs with its loyal taxation system, which is one of the most optimal in the European Union.
The fixed income tax rate for legal entities here is 15% (for comparison, in Germany - 30%, in Estonia - 21%, in Hungary - 20.6%). With regard to value added tax, reduced rates apply to certain categories of goods and services.
The tax system in Poland is not a tool to suppress entrepreneurs. The local legislation governing the mechanisms for applying transfer pricing applies the principle of reasonableness and expediency, and the burden of proof lies with the tax authority.
Income tax for individuals, PIT (Personal Income Tax)
Personal income tax is paid by everyone who receives wages (on the basis of labor and civil law contracts) or income from entrepreneurial activities. The exception is tax-free income. As of 2017, the personal income tax rate is 32%.
Income tax for legal entities, СIT (Corporate Income Tax)
The tax concerns the total income received on the territory of Poland by legal entities that have a board of directors or a registered office here. This is a single tax, and it is 15%.
Value added tax, VAT
Tax on the purchase of food, clothing, services. This tax is usually included in the price of the good or service (we are talking about the gross price). If the price is in net, this means that VAT must be added. However, in shops and consumer services, prices already include tax. In Poland, there are different VAT rates: 23%, 8%, 5%, 0% - depending on the type of goods and services:
23% — base tax rate;
8% — passenger transfer, hotel service, medicines, etc.;
5% — certain foodstuffs, etc.;
0% — export products, socially important services (banking, medical, postal), etc.
Transfer pricing rules in Poland
It should be noted that in Poland there is no codified legislative act in the tax field, and transfer pricing issues are regulated by two regulations: the 1992 law on corporate income tax and the 1991 law on personal income tax. The procedure for taxation of individuals, regulated by the latest law, is justified by the fact that the country provides for forms of companies that have the right to carry out economic activities without creating a legal entity.
Another regulatory act regulating various aspects of transfer pricing is the 2009 Decree 'On the method of determining the income of legal entities by valuation and on the method and procedure for avoiding double taxation in the event of correction of income of related persons'.
It should be noted that the main subjects of transfer pricing are national and foreign related parties in the event that business transactions are applied between them.
The difference between Polish regulation in the field of transfer pricing lies in the fact that relatively recently the legislator has provided for a provision that treats business transactions as agreements on the establishment of a company without the right of a legal entity, agreements on joint activities and agreements on structural units located both in Poland and abroad .
The nature of the dependence of related parties is determined by: participation in the capital of at least 5%, both direct and indirect; participation or influence on management, when, for example, without having 5% in the capital, you can have a significant impact on the adoption of certain decisions; family relations up to the second degree and labor relations, as well as property dependence, for example, common activities, common property, dependence on the use of property, etc.
ВIn general, the Polish legislation governing the mechanisms for applying transfer pricing applies the principle of reasonableness and expediency, and the burden of proof lies with the tax authority.
In addition, the legislator has provided a number of exceptions for transfer pricing entities, even in the case when the relationship of related persons is traced, namely, if the related persons are included in the same tax capital group. Also, exceptions are provided for the agricultural sector, when transactions between the group and its members relate to the sale of products produced by members of the group.
The cost criteria for business transactions are also determined, the excess of which requires the preparation of tax documentation regarding the justification of transfer prices. In particular, documentation is required if the cost of the transaction during the tax year exceeds 100 thousand euros (when the cost of the transaction does not exceed 20% of the authorized capital), 30 thousand euros - in the case of the provision of services, sale or transfer for use of intangible assets; 20 thousand euros - for settlements with persons located in offshore zones; 50 thousand euros - in other cases.
At the same time, it is not necessary to notify the tax inspectorate about the transactions carried out by related parties. However, transfer pricing participants are required to submit to the tax authority tax documentation that substantiates the nature of the transfer prices within seven days of receipt of its request.
Since the deadline for submitting documents is short, they should be prepared in advance (for example, at the time of the business transaction or immediately after its completion).
As a rule, this block of services for the application of transfer pricing and the preparation of relevant documentation is ordered from companies that are engaged in consulting and auditing. This operating time is enough for two years, since, as a rule, transactions are carried out with the same related parties and are identical.
In Poland, the activity of the tax authority is not a tool to suppress entrepreneurs. In principle, well-prepared documentation can be a sufficient argument for the supervisory authority. The content of the documentation is traditional, has standard parameters provided for in the laws.
At the same time, in the absence of documentation, the person bears tax and criminal liability. So, in the absence of documentation, a penalty rate of tax on additional accrued income is applied - 50% plus interest for delay. In addition, criminal liability in the form of a fine of PLN 4 million is possible if such documentation is missing or if it contains false information.
CFC (Controlled Foreign Companies) regulations in Poland
Since January 2015, Poland has introduced controlled foreign company (CFC) rules, according to which Polish tax residents are taxed at 19% on income received by their CFC. The term CFC includes legal entities, such as limited liability companies, as well as tax-free transparent structures, such as tax-free transparent partnerships.
- These rules apply if one of the following conditions is met:
- The registered office or place of effective management of the foreign company is in a jurisdiction blacklisted by Poland.
- The registered office or place of effective management of the foreign company is located in a jurisdiction that has not concluded a tax information exchange agreement with Poland or the EU.
The registered office or place of effective management of the foreign company is located in some other jurisdiction and all of the following conditions are met:
- at least 50% of his income comes from passive income;
- at least one type of passive income is taxed in another jurisdiction at a rate that is at least 25% lower than the income tax rate in Poland (which is currently 19%, so the threshold is 14.25%);
- a Polish tax resident owns directly or indirectly at least 25% of its share capital, voting rights or rights to participate in its profits for an uninterrupted period of at least 30 days.
- The provisions of the CFC do not apply in the following cases:
- The income of a foreign company in the tax year is less than 250,000 euros.
- A foreign company carries out a genuine business activity in the EU or in the European Economic Area and is taxed on all income.
A foreign company carries on a genuine business activity in a non-EU or EEA country and is taxed on all of its income, provided that:
- income is no more than 10% of the proceeds as a result of genuine entrepreneurial activity;
- there is a mechanism for the exchange of information between Poland and another country.