A limited liability company in Poland with a 9% corporate income tax rate up to EUR 2m of revenue.

There are two main corporate income tax (CIT) rates in Poland:

• 19% of the tax base (basic rate)
• 9% of the tax base (preferential rate), applicable up to EUR 2m of annual revenue.

Whereas applying the basic rate of income tax presents no major difficulties, taking advantage of the preferential 9% rate does require fulfilment of certain conditions.

The lower rate may be enjoyed by the following entities:

• so-called small taxpayers, whose gross sales revenue (i.e. including the amount of VAT due) did not exceed EUR 2m in the previous tax year, as converted according to the average exchange rate of the euro published by the National Bank of Poland (NBP) on the first business day of October of the previous tax year;
• entities whose net revenue generated in the tax year did not exceed EUR 2m, as converted according to the average exchange rate of the euro published by the National Bank of Poland (NBP) on the first business day of the respective tax year, rounded to PLN 1000 (in most cases, this will be 2 January of the respective year).

Also, the preferential 9% CIT rate can be applied by start-ups in their first tax year. However, the 9% ratecannot be used if the company is established through restructuring (e.g. demerger), through conversion to another type of activity or if an enterprise with a value of more than EUR 10k was contributed into the company.

Worth adding is that CIT taxpayers in Poland are:

• legal persons (including limited liability companies, joint stock companies, foundations, associations, cooperatives) and
• capital companies in organisation.

CIT is settled in Poland as follows:

• settlement takes place by the end of the 3^rd month of the year following the tax year,
• no tax returns are filed during the tax year, but advance payments are made by the 20^th day of each month. It is possible to make advance payments on a quarterly basis,
• accounting books must be kept (so-called full accounting).

Yet, let me add that, in addition to the preferential CIT rate of 9%, the following is possible in Poland:

• preferential taxation, i.e. the so-called Estonian CIT, 
• IP BOX relief related to income from intellectual property rights (e.g. software), 
• tax relief for research and development activity.

Rules of application of the “Estonian CIT” in Poland

The essence of the Estonian CIT (the name originates from the fact that Estonia was the first to introduce this type of tax solution) is that the obligation to pay CIT is postponed until the company distributes realised profit in the form of dividend. This allows the company invest a larger part of the revenue generated.

Under the Estonian CIT, there is no need to keep tax accounting, determine tax deductible expenses or calculate tax depreciation allowances. CIT advances are not paid on a monthly basis. The tax is paid when the company’s profits (dividends) are distributed. This gives you the freedom to determine the moment when taxation occurs and allows you allocate more of the money generated by the company to its day-to-day operations and to investments in increasing the company’s value.

Moreover, at the time of taxation (profit distribution), the effective tax rate (which comprises the tax on the company’s profit and the tax on dividends, payable by the shareholder) will be lower than in the case of conventional CIT:

• for small taxpayers it will be only 20% instead of 26.29%,
• for other taxpayers – a total of only 25% instead of 34.39%.

The Estonian CIT can be applied by joint stock companies, limited liability companies, limited partnerships, limited joint stock partnerships and simple joint stock companies. However, they must meet several conditions, the most important of them being as follows:

• revenue from receivables, interest, loans, lease payments, sureties, guarantees, copyright, industrial property rights, from sale of financial instruments and from transactions with related parties must not exceed 50% of the company’s total revenue
• the company must employ, on the basis of employment contract, at least 3 persons for at least 300 days in the tax year
• the shareholders, stockholders or partners in those companies must only be natural persons
• the company must not hold stock (shares) in the capital of another company.

Importantly, all conditions must be met cumulatively.

Rules of application of the so-called IP BOX preferential taxation

Taxpayers in Poland may take advantage of preferential taxation with respect to income obtained in connection with creation or improvement of the so-called qualified intellectual property rights. Preferential taxation is applied at the rate of 5% for corporate income tax (PIT) or CIT.

The introduced solution is supposed to stimulate the market of new technologies and innovative solutions by introducing preferential taxation at 5% in PIT and CIT (for income obtained from qualified intellectual property rights), instead of the standard tax rates.

Application of the IP Box requires fulfilment of certain conditions. The most important ones include:

• conducting research and development activity;
• creation of qualified IP (qualified intellectual property rights) as part of the research and development activity;
• generating income from qualified IP taxable in Poland;
• incurring eligible costs in connection with creation, development or improvement of the qualified IP.

The list of qualified IP that may be subject to the preferential income tax rate is a closed catalogue. According to the Act, qualified IP includes, among others:

• patents;
• right of protection for a utility model;
• right from registration of an industrial design;
• right from registration of a medicinal product and a veterinary medicinal product authorised for marketing;
• right from registration of an integrated circuit topography;
• copyright to computer software.

Incorporation of a company in Poland

Incorporation of a commercial company in Poland is possible both in the traditional way, before a notary public, as well as online through the dedicated S24 system. For more information on the procedure governing incorporation of a company in Poland, please see the article here: [ link ].

All of the aforementioned preferential taxation rules, and in particular the preferential taxation of development and research activity require fulfilment of certain conditions, which is why it is a good idea to consult your plans in advance with an expert in this area. In more complicated situations, also consider applying to the competent tax authority for an individual tax interpretation.

Paweł Osiński

Attorney at law