Taxpayers who report a loss or a low profitability ratio should take an interest in the new levy known as the minimum income tax, regulated in Article 24ca of the CIT Act (Corporate Income Tax Act). As of 1 January 2024, regulations concerning the minimum income tax have come into effect. These provisions concern those benefiting under special economic zone/Polish investment zone (SEZ/PIZ) CIT exemptions. The first settlement of the minimum CIT will occur in 2025 with the settlement of income for 2024. Therefore, there is not much time left.
To whom does it apply?
The minimum income tax applies to companies that are Polish tax residents and tax capital groups (a group of companies jointly accounting for CIT) that, in the tax year:
- Incurred a loss from sources of income other than capital gains or
- Achieved a share of income from sources of income other than capital gains in revenues other than capital gains not exceeding 2% (profitability ratio)
The Act specifies a catalogue of entities that are exempt from the minimum income tax. This catalogue is quite extensive – however, it does not include businesses in zones. For the purposes of calculating the loss or profitability ratio, the CIT Act includes a catalogue of revenues and deductible costs excluded from the calculation of the loss and the share of income in revenues (the profitability ratio). This tax is paid at a rate of 10% of the tax base. Determining the tax base requires detailed analysis as it comprises several elements.
The tax base is reduced by:
- The value of statutory deductions reducing the tax base in the tax year;
- Revenues considered when calculating exempt income (zone exemption) for taxpayers benefiting from tax exemptions specified in these regulations;
- Revenues excluded from the calculation of tax loss and profitability ratio for the purposes of the minimum tax.
From the beginning, the situation for entities benefiting from the zone exemption in terms of the minimum income tax can be described as uphill; it’s an absurd situation. The legislator announced during the introduction of the minimum tax regulations that it would not apply to zone entities. However, this did not ultimately happen. The CIT Act includes a catalogue of entities explicitly excluded from the new tax. Nevertheless, this list does not include companies benefiting from the CIT exemption due to activities in SEZ/PIZ.
Losses on activities within the zones
In Article 24ca(10)(2) of the CIT Act, the right to deduct income considered when calculating income exempt from an SEZ is indicated. In connection with this regulation, doubts have arisen as to whether, in a situation where an entity generates a loss from activities within the special economic zone, the deduction provided for in Article 24ca(10)(2) of the CIT Act applies to it. In this regard, it seems that tax authorities should allow such deduction for businesses in this case. This position was also confirmed in an individual interpretation issued on April 25, 2024, by the Director of the National Tax Information, 0111-KDIB1-3.4010.51.2024.1.PC. Companies should obtain their own individual interpretation in this respect.
A taxpayer who wants to properly use the zone exemption must correctly determine the moment from which the exemption applies. As of 1 January 2023, new regulations governing the conditions for granting public aid within the Polish Investment Zone (PIZ Regulation) came into force. Based on earlier regulations in this area, significant interpretative doubts arose. Currently, from 1 January 2023 (based on the PIZ Regulation), entities that have obtained support decisions issued after the new PIZ Regulation came into force must remember that they can start using the exemption only after the investment completion date specified in the support decision. This significantly complicates the issue related to the minimum income tax. In the case where a zone entity cannot yet demonstrate exempt revenues from zone activities because the zone investment is not completed, it cannot deduct the zone revenue from the minimum income tax base according to Article 24ca(10)(2) of the CIT Act.
R&D tax relief – a remedy for the minimum income tax
The R&D tax relief is a tool that allows businesses (regardless of size) conducting R&D activities to additionally deduct qualifying costs from the tax base. Identifying the right to it can be a remedy for the minimum income tax. The Act indicates that the tax base in the minimum income tax is reduced by the value of deductions reducing the tax base in the tax year, as mentioned in Article 18 of the CIT Act. Tax authorities in individual interpretations issued so far have confirmed that taxpayers obligated to pay the minimum income tax have the right to reduce the tax base by the unused R&D tax relief amount from the current year and previous years, up to the amount not exceeding the minimum tax base. Given the small number of individual interpretations in this area, it is difficult yet to speak of an established line of interpretation.. Therefore, it is recommended that businesses submit their own applications for individual tax interpretations.
This may also apply to zone taxpayers. However, it should be borne in mind that the deduction under the R&D tax relief allowance only covers qualified costs not included by the taxpayer in the calculation of exempt income within the zone. In practice, the possibility of establishing entitlement to R&D relief may apply to those zone businesses able to identify R&D activities outside the zone exemption area. This solution can be beneficial if the unused R&D tax relief amount can be deducted during the minimum income tax calculation. However, this should be secured through an individual interpretation.
Taxpayers should take an interest in the topic of the minimum income tax as soon as possible. This tax will have to be paid in 2025 in the return for 2024. The situation becomes complicated for zone entities. These entities have not been excluded from the subject scope of the minimum income tax. A taxpayer operating within the zone must verify whether or not they qualify for the minimum income tax and, secondly, whether they are entitled to the statutory deduction from the minimum income tax. Particular attention should be paid to proper cost and revenue allocation within zone activities. In this regard, professional tax advisory may be necessary.
