Advances on income tax negatively affecting your cashflow? Why don’t you move your business to Poland? In Poland the “Estonian CIT” is a very hot topic starting fom 2022. In simple words you do not pay any corporate income tax on the company’s profit unless you pay out a dividend. And even if you do you will pay a reasonable 20% or 25% depending on the size of your business. ) for corporate and personal income taxes combined. What is not to love about this regulation? Read more to find out how to perform a tax optimization of your business in Poland.
How will you benefit from Estonian CIT?
- You won’t pay CIT on the company’s profit
- You won’t pay the solidarity levy
- You won’t pay the health contribution (at all!)
- You will pay lower tax when withdrawing your profit
Who can use the 0% corporate income tax rate in Poland?
The following entities can use this form of taxation:
- JOINT-STOCK COMPANY (Polish S.A.)
- SIMPLE JOINT-STOCK COMPANY (Polish P.S.A.)
- LIMITED LIABILITY COMPANY (Polish Sp. z o.o.)
- LIMITED JOINT-STOCK PARTNERSHIP (Polish spółka komandytowo-akcyjna)
- LIMITED PARTNERSHIP (Polish sp.k.)
When is it worth to benefit from the Estonian CIT?
- SavingsIf your business generates high income that is not fully consumed by partners and shareholders.
- ReinvestmentsIf your business is expanding and you need a lot of funds for investments in fixed assets, goods, technology and employment.
- Major transactions (sale of assets)If your company is about to make a large transaction from which the income must be used in a way that does not generate tax costs. For example, the sale of valuable property that requires the use of the majority of the sum to repay the loan, in order to free the mortgage.
How much can you save on Estonian CIT?
Estonian CIT for a small taxpayer (turnover up to 2 000 000 EUR)
| Standard CIT | Estonian CIT | |
| Company’s income | 1 000 000 PLN | 1 000 000 PLN |
| CIT tax rate | 9% | 10% |
| Taxation of dividend | Paid out profit – 910 000 PLN Tax on dividend (19%) – 172 900 PLN | Paid out profit: 1 000 000 PLN Estonian CIT (10%): 100 000 PLN Tax on dividend including the reduction by 90%: 100 000 PLN |
| Tax to be paid | 262.900 PLN (26.29%) | 200.000 (20%) |
| SAVINGS RESULTING FROM ESTONIAN CIT | – 62 900,00 PLN – tax rate reduced by 6.29 percentage points – the tax is reduced by as much as 31,45 % |
Estonian CIT for a taxpayer with a turnover above 2 000 000 EUR.
| Standard CIT | Estonian CIT | |
| Company’s income | 1 000 000 PLN | 1 000 000 PLN |
| CIT tax rate | 19% | 20% |
| Opodatkowanie dywidendy | Paid out profit – 810 000 PLN Tax on dividend (19%) – 153 900 PLN | Paid out profit: 1 000 000 PLN Estonian CIT (20%): 200 000 PLN Tax on dividend including the reduction by 70%: 50 000 PLN |
| Tax to be paid | 343.900 PLN (34.39%) | 250.000 PLN (25%) |
| SAVINGS RESULTING FROM ESTONIAN CIT | – 93 900,00 PLN – tax rate reduced by 9.39. percentage points – the tax is reduced by as much as 27,3 % |
Under what rules can you use the 0% corporate income tax rate in Poland?
- OPERATING COMPANY REQUIREMENTYour company’s revenue comes mostly from its operations. Furthermore, its passive income accounts for less than 50% of turnover.
- FULL-TIME EMPLOYMENT OF 3 PEOPLEYour company hires at least 3 people for full-time under an employment contract. Alternatively, it incurs employment costs in a form other than an employment contract in the amount of at least 3 times the average monthly remuneration in the enterprise sector, with the simultaneous need to incur costs connected with income tax and ZUS and health contributions. In the first year, for a small taxpayer, it corresponds to 1 full-time job and the equivalent of 1 average salary. For a taxpayer in the first year of starting his business, it amounts respectively to 0, then in the second year – 1, in the third year -2, and so on, until the requirement is fulfilled in the 3rd year of being subject to a lump sum tax.
- SIMPLE OWNERSHIP STRUCTUREOnly natural persons are shareholders or partners of your company.
- EXCLUSION OF COMPANIES BELONGING TO CORPORATE GROUPYour company does not hold any shares (stocks) in the capital of another company. It does not have participation titles in an investment fund or collective investment institution. It also does not have rights and obligations in a company that is not a legal person. Moreover, it does not participate in other property rights connected with the right to receive benefits as a founder or beneficiary of a foundation, trust, other entity or legal relationship of a fiduciary nature.
- EXCLUSION OF IASYour company does not prepare IAS financial statements for the period covered by the lump sum tax.
- EXCLUSION OF FINANCIAL ENTERPRISES AND LOAN INSTITUTIONSYour company does not carry out financial or lending activities as part of its business.
- EXCLUSION OF SEZ AND POLISH INVESTMENT ZONEYour company does not benefit from exemptions resulting from the Special Economic Zone (SEZ) or the Polish Investment Zone
- NOTIFICATION TO THE TAX OFFICEYou will submit a notification about the choice of lump sum taxation to the competent head of the tax office, according to the established formula.
Effective taxation under the Estonian CIT (PIT+CIT)
There are two effective tax rates under the Estonian CIT:
- 20%For small taxpayers (turnover up to 2 000 000 EUR)
- 25%For taxpayers with a turnover exceeding 2 000 000 EUR
And a real game changer:
- 0%The funds left in the company as undistributed profit remain untaxed, therefore the effective tax rate may be much lower than those presented above.
Are you looking for an accountant in Poland or a payroll services provider in Poland? Specialists from our accounting firm in Poland, Warsaw will be happy to help. If you are interested in company registration in Poland visit our dedicated landing page.