The end of the year is not only the need to settle “ordinary” income tax (CIT). On the date of filing the annual return, taxpayers may also be obliged to calculate and pay the so-called national (Polish) minimum tax.
Note: The national (Polish) minimum tax commented below is different from the equalization tax (Pillar II), which covers the taxation of large capital groups at the global and local level. The national minimum tax can apply to virtually any taxpayer, which is why it is necessary to carry out detailed calculations – especially since tax authorities are increasingly demanding that they be provided, even from those entrepreneurs who have not been affected by this tax in the end.
So who can be covered by the national minimum tax obligations and what actions should be taken to demonstrate that they have been carried out with due diligence?
What is the minimum tax?
The minimum income tax is an additional tax introduced into the Polish Corporate Income Tax Act to prevent the artificial underestimation of income and its transfer abroad. As a result, it assumes taxation of those entities that show a loss on their business or a very low level of the so-called profitability (no more than 2%).
Who does it concern?
Any person may be subject to the national minimum tax:
- limited liability company,
- joint-stock company,
- limited joint-stock partnership,
- limited partnership,
- a general partnership that is a CIT taxpayer,
- tax CIT group,
being a Polish tax resident and a foreign entrepreneur conducting business through a permanent establishment located in Poland.
Importantly, the Corporate Income Tax Act contains a number of exceptions, excluding from the group of taxpayers of the national minimum tax, m.in. “small taxpayers”, financial institutions or companies whose shareholders are only natural persons, as well as taxpayers who are part of a group of at least two companies meeting the relevant ownership requirements and profitability levels. However, most exclusions are subject to additional requirements, so they should be applied with caution, taking into account all relevant circumstances.
Step 1: Profitability calculation
In order to determine whether a taxpayer meets the conditions for taxation with the national minimum tax for a given tax year, it is necessary to first verify the level of its profitability.
ATTENTION!
- it is not sufficient to calculate the level of profitability/profitability of the activity according to publicly available economic formulas,
- it is required to prepare detailed calculations based on tax revenues and tax-deductible costs incurred in the previous year, reduced by strictly indicated categories of revenues and costs,
- even if the profitability is more than 2% (which means that the national minimum tax is not due), the taxpayer should keep the evidence of the calculations made – in our experience, tax authorities call on taxpayers to present them also in order to verify whether the national minimum tax was not actually due.
Step 2: Determination the tax base
If the taxpayer’s profitability is no more than 2% or if he has incurred a loss on his business (and does not benefit from any exemptions), he may use two alternative methods of determining the tax base (you should inform your head of the tax office about its choice):
- the standard method – assuming the determination of the tax base as a sum strictly defined in the Tax Act, but sometimes quite enigmatic or debatable revenue and cost items (which requires appropriate selection of data and preparation of precise calculations), or
- the simplified method – allowing to determine the tax base at a level corresponding to 3% of tax revenues (other than capital gains).
Depending on the structure of costs and revenues of the taxpayer, method 1 or method 2 may be more advantageous, so it is worth making this decision consciously.
Step 3: Calculation and payment the minimum tax
The national minimum tax is 10% of the tax base. Its value is disclosed in the CIT-8 return (next to the “ordinary” income tax) and in the CIT/M attachment “Information on the amount of minimum income tax”.
However, this does not mean that the entrepreneur pays double tax. The following are subject to payment to the tax office:
- “ordinary” CIT due for a given tax year
and
- the amount of the calculated national minimum tax reduced by the value of “ordinary” CIT.
What is more, the taxpayer has the right to deduct the national minimum tax paid in subsequent tax years.
Summary
The current regulations on the national minimum tax lead to the situation that in practice a significant number of entities may not be obliged to pay it. However, this does not exempt them from the obligation to carry out detailed analyses and complex calculations, even before the deadline for filing the annual tax return (i.e. by the end of the third month after the end of the tax year).
If you need support in fulfilling the obligations related to the minimum national tax – please contact us.
As part of our services, we offer:
- verification of the conditions qualifying the taxpayer for exemption from the minimum tax for a given year,
- support in calculating profitability, tax base and national minimum tax based on a proprietary tool facilitating settlements in the scope of the above-mentioned tax,
- analysis of revenue and cost items recognised for the purposes of calculating the level of profitability and qualified for exclusion from the calculation of the national minimum tax,
- a recommendation on the choice of the method of determining the tax base for the national minimum tax.
Author: Agnieszka Czarnecka
