Estonian CIT, or low taxation of your business in Poland!

Attention Business Owners!

When considering switching to Estonian CIT, you are faced with a decision with a significant impact on the future of your business. In order to take advantage of this form of taxation in the 2024 tax year, it is necessary to file a notice with the Tax Office almost immediately after the registration of the Company. Failure to comply with this deadline leads to complex tax and accounting obligations that may adversely affect your business.

Why choose our Firm?

Professionalism and Experience: Our team of experts, specialising in Estonian CIT settlements, ensures ongoing monitoring of regulatory changes and adequate response to the evolution of the tax system.

Security: We are aware of the risks that incorrect accounting entails. That is why our office has a 1 million zloty insurance, offering you additional protection and peace of mind.

Unique Offer!

We realise that Estonian CIT is not only about the benefits, but also about the potential ‘pitfalls’. To help you make an informed decision, we invite you to a free consultation meeting at our office. We will conduct a qualification test to assess your company’s suitability for Estonian CIT and calculate the potential benefits together with you.

Schedule your meeting today!

Don’t risk being unprepared and uncertain. Take advantage of our knowledge and experience to make the transition to Estonian CIT safe and beneficial for you and your company. Choose wisely – bet on professionalism and security.

Contact us now to schedule an appointment and find out more about how we can help you.

Mail: edyta@mencel.com.pl, tel. 222901122

In 2021, a lump-sum tax on corporate income was introduced in Poland. It is a form of business income taxation designed for CIT taxpayers. The lump sum on company income was inspired, among other things, by the model of corporate taxation in Estonia, hence it is colloquially referred to as “Estonian CIT”.

Estonian CIT is considered a friendly business taxation model, but is it really so?

Estonian CIT for small and large

The flat rate on company income is a solution for micro, small, medium and large entrepreneurs alike. All you need to do is employ at least 3 individuals under an employment contract or a civil law contract.

Estonian CIT for different companies

Lump-sum taxation on company income may be chosen by entrepreneurs operating as a joint-stock company, a simple joint-stock company, a limited liability company, a limited joint-stock partnership or a limited partnership whose partners are exclusively natural persons. Taxpayers of lump sums on company income are also not allowed to hold shares in other companies.

Conversion to Estonian CIT without any fees or difficulties

By opting for Estonian CIT, you will not pay tax on the differences between the accounting and tax settlement if you do not opt out of this form of taxation for at least four tax years. You can switch to Estonian CIT both at the beginning of the new tax year and during the new tax year.

Main benefits

Improved cash flow

You will only pay tax when you distribute profit. It is the company that decides when and in what amount it will distribute profit to shareholders. Thus, it determines itself the timing and the amount of tax to be paid. In addition, there are no advance tax payments in Estonian CIT. As a result, the company has more funds available for day-to-day business operations.

Savings

Taxation of profit distributions in the form of dividends is lower than under the classic rules. When taxed as a lump sum on company income, you will pay significantly less. In the case of a small taxpayer, you will pay CIT and PIT at a total rate of 20% – instead of 26.29%. For larger taxpayers, the amount of CIT and PIT will be only 25% – instead of 34.39%.

When will you pay tax on Estonian CIT?

When you distribute profits from the company, i.e. you do not reinvest them or keep them in the company.

A distribution is first and foremost a dividend

This is a clear and simple rule. But there are also rules that are less clear and simple , i.e. those concerning so-called hidden dividends.

Remember!

Withdrawal of profits is understood broadly – it is not only the formal payment of dividends, but also any other situation identical in effect. These are situations where you intentionally pay out profits in a manner other than in the form of dividends – e.g. the company provides a non-refundable loan to the shareholder or finances expenses that may be considered as costs of representation. The Ministry of Finance is constantly expanding the catalogue of expenses that it considers to be a so-called HIDDEN DIVIDEND

QA:

What is a lump sum on corporate income?

This is the professional name for the so-called ‘Estonian CIT’ under the CIT Act.

What is the timing of the Estonian taxation?

Taxpayers choose this method of taxation for a period of immediately consecutive 4 tax years.

What happens afterwards?

Lump sum taxation on corporate income is automatically renewed for a further period of immediately consecutive 4 tax years.

Can I opt out of Estonian after 4 years?

Yes, if, together with the end of the last tax year of the respective 4-year period, the taxpayer files a notice to opt out of the lump-sum taxation.

Is it possible to opt out earlier?

It is also possible to opt out of the flat rate on company income before the end of the 4-year period.

What are the consequences of early opt-out of Estonian?

However, opting out of lump-sum taxation on company income early may have negative consequences, such as the obligation to pay tax on the initial adjustment income.

What are the consequences of exiting the Estonian taxation regime?

An exit from the Estonian system, in whatever form it takes, will involve the obligation to pay tax on all profit earned during that period, which you may pay immediately or only when distributing that profit. The amount of tax is determined by applying the tax rate that was applicable in the last year of Estonian CIT.

What conditions do I have to meet to benefit from Estonian?

Employment of employees: To obtain Estonian CIT, you must meet one of the following conditions:

Employment contracts: Employ at least 3 full-time employees who are not shareholders, stockholders or partners of your company. This employment must last for at least 300 days in the tax year or for at least 82% of the days of the tax year if the year is not a full calendar year.

Other contracts: If you employ people under contracts other than employment contracts (e.g. assignment contracts), you must pay wages to at least 3 individuals who are not shareholders or partners of your company. These salaries must be taxed as personal income tax or social security contributions or publicly funded healthcare benefits.

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