Mandatory minimum tax for companies in Poland from 2024 – what do you need to know?

As of the beginning of 2024, a new tax regulation comes into force, which introduces a mandatory minimum tax for companies that record a loss or have low profitability. This is a significant change in Polish tax law that could have a significant impact on the way we do business in our country.

In this article, we will lean into the details of this new tribute, explaining the rules for its calculation, discussing Article 24ca of the CIT Law, and pointing out how the minimum tax will function alongside the classic corporate income tax (CIT).

What is the minimum tax?

The minimum tax is a new tax obligation that came into effect on January 1, 2024. The legislator is introducing it in response to situations in which companies, despite generating revenues, do not show profits or their profitability is very low. As intended, the tax is expected to tighten the tax system and increase state budget revenues.

Who will pay the minimum tax?

The minimum tax will be paid by companies that have incurred a loss from a source of income other than capital gains (i.e. from operating activities) and companies with low profitability – those for which the share of income from operating activities in income from these activities was no more than 2%. The loss and the share of income in income are calculated pursuant to Article 24ca(2) of the CIT Law. Thus, the company’s tax result and tax will be calculated independently of the “classic” CIT. Thus, it is not the case that if the company shows a loss or low income in a given year, it will automatically be obliged to pay the minimum tax.

How the minimum tax will be calculated – differences from the “classic” CIT

When calculating the loss or income from operations, we do not take into account certain expenses, such as depreciation or lease payments, or certain taxes, such as excise taxes. The tax base in the simplified form is 3% of operating income. The minimum tax rate is 10% and is payable by the due date of the annual return (for 2024 by the end of March 2025). Although the minimum tax will not be settled for the first time until next year, it is already worth preparing for the way it is calculated.

Exclusions from the minimum tax

Not every entity that meets the above criteria will be required to pay the minimum tax. Excluded from this obligation are, for example, entities with the status of small taxpayers or start-up companies. Also excluded will be entities whose activities are characterized by low profitability (e.g. hospitals, municipal companies).

Minimum tax versus “classic” CIT

Taxpayers may be required to pay CIT and minimum tax in one year. However, in such a situation, it will be possible to reduce the amount of the minimum tax by the “classic” CIT due. In addition, after paying the minimum tax, it will be possible to deduct it from the “classic” CIT in the following three tax years.

What could be the consequences of introducing the minimum tax for business?

The consequences of the introduction of a minimum tax for Polish businesses may be of various types. First and foremost, the new levy may place an additional financial burden on businesses that are already facing economic problems evident through lack of profit or low profitability. This may lead to the need to restructure and seek savings in other areas of the business. In addition, the introduction of a minimum tax may discourage potential investors from investing their funds in Polish companies, which could have a negative impact on the country’s economic development. On the other hand, by providing stable revenues for the state, the minimum tax could contribute to socio-economic goals, such as funding the education system or health care. Ultimately, the introduction of a minimum tax is one of many elements of the tax system, and its impact on business will depend on the specific economic and political conditions at the time. However, for professionals providing tax consulting services, the new tax may pose additional challenges and require extensive knowledge and experience to help clients adapt to the changing regulations.

Summary

The 2024 tax reform introduces significant changes to the tax burden for companies in Poland. As business owners, accountants or tax lawyers, we must face the introduction of a minimum tax that will force a new approach to tax planning. Our law firm is prepared to support our clients in understanding and adjusting to the new requirements so they can focus on what matters most – running their businesses.

Want to learn more about the tax system in Poland? Visit our specially prepared website https://www.dudkowiak.com/tax-law-in-poland/