The Polish economy, in view of political turbulence, has been put to the test for quite some time now. At the same time, the Polish tax system has been going through some major changes, some of which have already been implemented and some which are to come into force in 2019. Despite the general Europe-wide tendency to clamp down on tax leakage, the Polish legislator sometimes takes a different tack and equips taxpayers with tools enabling them to reduce the amount of tax they pay in Poland.

Among the new solutions being considered there is a notional interest deduction (NID); the possibility to deduct fictitious “costs” of a business’ own financing, equivalent to the costs of debt financing. This scheme is only known in some jurisdictions, and while it’s a great move by the Polish government to attract new capital, at this stage the level at which interest can be expensed is quite low (only PLN 250,000).

Another revolutionary incentive shall be 9 percent CIT rate for small businesses. Currently they enjoy a 15-percent CIT rate (instead of 19 percent). Additionally, the group of those who qualify for the lower rate will be expanded and include taxpayers with a revenue threshold of €2 million, instead of the current €1.2 million. Year after year, new tax privileges are granted for innovation; in addition to R&D incentives, which allow businesses to double or triple the deductible qualifying costs, a scheme called “Innovation Box” will be
introduced. It enables a reduction of the CIT rate to 5 percent, applicable on income derived from property rights such as patents
and protective rights for utility models.

Introduced in 2018, the new income tax due on real estate, called “minimum tax,” if paid by real estate owners, will be eligible for a refund. On the one hand, from 2019 it will encompass a broader scope of real estate, with a lower tax-free amount, but on the other hand, taxpayers will have the right to apply for a refund of the total amount paid.

ASI (alternative investment schemes) might enjoy income tax exemption on sale of shares. This will greatly contribute to the popularization of this investment vehicle. Another interesting one, the Polish Real Estate Investment Trust, might be ready for implementation next year, granting attractive tax rates applicable on distributed income from lease profits.

Those who accumulate tax losses will be allowed a one-off deduction of up to PLN 5 million. Losses that have arisen in any of the previous years, eligible for setoff, may be included in this amount. The remaining loss amount, as it is now, will be settled within five consecutive years, up to 50 percent in one year.

The above changes, although some of them still under legislative works, are proof of the Minister of Finance’s pro-business attitude. However, he is not indifferent to behavior aimed at tax avoidance. Such behavior is subject to sanctions, like in the case of transactions with related parties, with prices below market value, or to the split payment mechanism, aimed at eliminating fraudulent practices.