Corporate Income Tax (CIT)

CIT is a tax on the income of legal entities. The CIT rate is 19% or 9% for small taxpayers and startups. Find out who can apply the 9% CIT rate, what deductions are available, and how to settle the tax. If you pay CIT:

You settle the tax by the end of the third month of the following year after the tax year and pay the tax within that period. If the taxpayer’s tax year coincides with the calendar year, you submit the settlement by March 31 of the following year.

During the tax year, you do not submit tax returns but only pay advances by the 20th of each month. Taxpayers who use quarterly advances pay them by the 20th of the month following the quarter for which the advance is paid.

You keep accounting books, known as full accounting.

CIT Rates

The CIT rates are:

19% of the tax base

9% of the tax base from revenues (income) other than capital gains for small taxpayers and startups.

Who Can Apply the 9% Rate?

The reduced 9% rate can be used by:

Small taxpayers whose gross sales revenue (including VAT) did not exceed the equivalent of 2 million euros in the previous tax year, converted at the average euro exchange rate announced by the NBP on the first business day of October of the previous tax year, rounded to the nearest 1,000 PLN.

Entities whose net revenues in the tax year did not exceed the equivalent of 2 million euros, converted at the average euro exchange rate announced by the NBP on the first business day of the year, rounded to the nearest 1,000 PLN (typically January 2 of the given year).

Additionally, startups can apply the 9% CIT rate in their first tax year.

Note: You cannot apply the 9% rate if the company was created through restructuring (e.g., division of an existing company), conversion of a sole proprietorship or a non-legal entity into another type of business, or if an enterprise (or its part or assets) worth over 10,000 euros was contributed to the company.

What Is Taxed

The tax object is the income (surplus of revenues over incurred costs) obtained by the company in a given tax year. The income consists of:

Income from capital gains and

Income from other sources of revenue.

A special form of taxation is the lump-sum tax on corporate income, known as Estonian CIT. In this case, the tax object (income) is the net profit allocated by the company for specific purposes.

Companies with their registered office or management in Poland pay CIT on their worldwide income, regardless of where it is earned.

Companies without a registered office or management in Poland are subject to tax only on the income they earn in Poland.

In some cases, the tax object may be revenue.

Revenue in CIT

Taxable revenues in CIT include received money, monetary values, exchange differences, or the value of things, rights, or other benefits received for free or partially for free.

Important: Revenue related to business activity includes due revenues, even if not yet received, excluding the value of returned goods and granted discounts.

Revenue arises on the day the item is delivered, the property right is sold, or the service is performed, including partial performance, but no later than the day the invoice is issued or the payment is settled.

For services settled in billing periods, revenue arises on the last day of the billing period specified in the contract or invoice (not less frequently than once a year). This rule also applies to determining the date of revenue from the supply of electricity, heat, and pipeline gas.

For revenues not covered by the above rules, the revenue date is the day of receiving the payment.

Deductible Costs in CIT

Deductible costs in CIT are expenses incurred to generate revenues or to maintain or secure a source of revenue.

These include expenses directly related to revenues, such as costs incurred to purchase goods, as well as those indirectly related to achieving revenues.

Directly related costs are settled in the year the revenues are achieved. Other costs are settled in the year they are incurred.

The date of incurring the cost is the day it is recorded in the accounting books based on an invoice or other accounting document.

To be deductible, an expense must:

Be incurred by the taxpayer, not another person (generally, actual payment is not required, only the incurrence of the cost, i.e., issuing an invoice and recording it in the books).

Be incurred to generate revenues, maintain or secure a source of revenue.

Not be listed in the catalogue of non-deductible costs.

Depreciation

Depreciation write-offs are included in deductible costs.

Only acquired intangible and legal assets, such as buildings, constructions, machinery, transportation means, investments in third-party fixed assets, and property rights like licenses, copyrights, industrial property rights, and know-how, are subject to depreciation.

Taxpayers generally make depreciation write-offs from the initial value of fixed assets in equal instalments monthly, quarterly, or annually (except for the declining balance method).

Small taxpayers and startups (except converted companies) can use a one-time depreciation write-off of up to 100% of the initial value of the fixed asset in the year the assets were entered into the fixed asset register and intangible and legal assets.

This applies to fixed assets classified in groups 3-8 of the Fixed Asset Classification (machinery, devices, and transportation means), excluding passenger cars.

The total amount of such a one-time depreciation write-off for cars cannot exceed 50,000 euros. The limit is converted to PLN based on the average euro exchange rate announced by the NBP on the first business day of October of the previous tax year, rounded to the nearest 1,000 PLN.

All taxpayers can make a one-time depreciation write-off from the initial value of:

Newly acquired fixed assets classified in groups 3-6 and 8 of the Fixed Asset Classification in the tax year in which these assets were entered into the fixed asset register and

Intangible and legal assets,

up to the amount not exceeding 100,000 PLN in the tax year.

The condition for using this one-time write-off is that the initial value of:

One fixed asset is at least 10,000 PLN, or

The total initial value of at least two fixed assets is at least 10,000 PLN, and the initial value of each of them exceeds 3,500 PLN.

Leasing

Leasing fees are included in deductible costs, depending on the contract terms. Leasing fees are fully deductible if:

The contract is concluded for a specified period, constituting at least 40% of the normative depreciation period or at least 5 years for real estate.

The total agreed fees (including the sale price), less the due VAT, correspond to at least the initial value of the leased asset, and in the case of subsequent leasing of a fixed asset or intangible and legal asset previously subject to such a contract, correspond to at least its market value on the day the subsequent leasing contract is concluded.

The leasing contract, if the lessee is an individual not conducting business activity, is concluded for a specified period.

Deductions from the Tax Base (Income)

From the income, you can deduct, among other things:

Donations to public benefit organizations within a limit of up to 10% of income.

Banks’ forgiven loans due to restructuring (20% of such loans).

Donations for religious purposes within a limit of up to 10% of income.

Donations for vocational education purposes transferred to public vocational schools.

A deduction for research and development activities (specific qualified costs).

A deduction for innovative employees.

A deduction for prototypes.

A deduction for automation.

A growth deduction.

A consolidation deduction.

A deduction for the first public offering (IPO).

A deduction for supporting sports, culture, and education.

A deduction for payment terminals.

Additionally, if you incur a loss in a given tax year, you can deduct it (reduce the achieved income) in the next five tax years.

Monthly and Quarterly Advances in CIT

Monthly Advances

Monthly advances in CIT are paid by the 20th of each month for the previous month, and the advance for the last month of the tax year is paid by the 20th of the first month of the next tax year. If you submit a return and pay the tax before the deadline for paying the advance for the last month, you do not pay this advance.

CIT taxpayers can pay monthly advances in a simplified form, i.e., in the amount of 1/12 of the tax due, reported in the return submitted in the year preceding the given tax year.

If no tax due is reported in that return, you can pay monthly advances in the amount of 1/12 of the tax due, reported in the return submitted two years before the given tax year. However, if no tax due is reported in that year either, you cannot pay advances in a simplified form.

Taxpayers who want to choose the simplified form of paying advances must:

Apply this form of paying advances throughout the tax year.

Pay advances by the deadlines set for monthly advances.

Settle the tax for the tax year.

The choice of simplified advances must be reported in the annual return submitted for the tax year in which the simplified advances were paid.

Tax Preference

Taxpayers who are small entrepreneurs in the meaning of the economic activity regulations from the start of their business until the first day of the month of the tax year in which they start using the exemption can benefit from a tax preference.

The preference allows postponing the obligation to pay advance income tax while spreading these payments over 5 interest-free instalments.

In this case, the taxpayer submits a tax return and pays the due tax for the year covered by the exemption in five consecutive tax years, each instalment being 20% of the due tax reported in the return submitted for the year covered by the exemption.

The tax is payable within the deadlines for submitting returns for the five consecutive tax years immediately following the year covered by the exemption.

To use the exemption, submit a written statement to the head of the competent tax office by the 20th day of the first month of the tax year covered by the exemption.

Quarterly Advances

Quarterly advances can be paid by:

Taxpayers starting their business in the first tax year.

Small taxpayers.

Quarterly advances are paid by the 20th day of each month following the quarter for which the advance is paid, and the advance for the last quarter of the tax year is paid by the 20th day of the first month of the next tax year. If you submit a return and pay the tax before the deadline for paying the advance for the last quarter, you do not pay this advance.

You report the choice of the quarterly advances method in the tax return submitted for the tax year in which the quarterly advances were paid.

Important: Taxpayers do not need to pay monthly or quarterly advances if the due tax on the income earned from the beginning of the year, reduced by the sum of advances paid from the beginning of the year, does not exceed 1,000 PLN. Advances are collected from the moment (for the month) when the cumulative income exceeds this amount.

Annual CIT Settlement

Taxpayers are required to submit an annual return on the income (or loss) for a given tax year by the end of the third month of the next year. If the taxpayer’s tax year coincides with the calendar year, this is March 31 of the following year.

They must also pay the tax within the same period.

You submit the tax return to the head of the competent tax office using the CIT form.

Additionally, the taxpayer is required to submit financial statements to the National Court Register within six months of the new financial year.

Tax Year in CIT

The tax year in CIT is the calendar year.

However, you can specify a different tax year in the company agreement, statute, or other document regulating the entity’s constitutional rules.

This means that for a company registered in the KRS, the tax year can be the following 12 months, and the beginning of the tax year can be chosen as a day other than January 1 of each year.

If you start business for the first time, the first tax year lasts from the start of the business to the end of the calendar year or to the last day of the selected tax year, but not longer than twelve consecutive calendar months.

If you start business for the first time in the second half of the calendar year and choose the tax year coinciding with the calendar year, the first tax year can last from the start of the business to the end of the calendar year following the year in which the business started.

You report the choice of a tax year other than the calendar year in the CIT-8 tax return.

Changing the Tax Year

In the case of changing the tax year, the first tax year after the change is considered the period from the first month following the end of the previous tax year to the end of the newly adopted tax year.

When changing the start of the tax year, remember that this period cannot be shorter than 12 months or longer than 23 consecutive calendar months.

Tax Year and the Obligation to Close the Accounting Books

If other regulations require closing the accounting books (preparing a balance sheet) before the end of the taxpayer’s adopted tax year, the tax year is considered the period:

From the first day of the month following the end of the previous tax year.

To the day of closing the accounting books.

In this case, the next tax year is considered the period from the day of opening the accounting books to the end of the taxpayer’s adopted tax year.

Alternative Settlement Method – Estonian CIT

Corporate income taxpayers who meet the conditions specified in the law can use the Estonian tax rules.

In Estonian CIT, there is no need to:

Keep tax accounting.

Determine tax-deductible costs.

Calculate tax depreciation.

CIT advances are not paid monthly – the tax is paid when the profit is distributed (dividends).

This allows for flexible determination of the taxation moment and enables using the money for the company’s ongoing activities.

Additionally, at the moment of taxation (profit distribution), the effective tax rate (comprising the company’s profit tax and the shareholder’s dividend tax) will be lower than in the case of classic CIT. For small taxpayers, it will be only 20% instead of 26.29%, and for other taxpayers – a total of only 25% instead of 34.39%.

Do you need reliable accounting for your limited liability company (sp. z o.o.)?

Contact us:

Phone: +48 22 290 11 22

Email: biuro@mencel.com.pl

Our professional accountants are ready to work and will gladly assist you with honest yet creative accounting for your limited liability company.

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