From 1 July 1997, the calculation of social insurance contributions (ZUS) is to be amended; the most important changes are as follows:
- The base for calculating ZUS contributions will include anniversary and other special awards where such awards are made more than once every 5 years.
- The value of meals served in canteens for consumption during working hours, where employees have no right to take a cash equivalent, will not be included in the ZUS base. Such meals may be provided either by the company or by a caterer.
- Lump-sum payments made to an employee for use of his private car for business purposes are not liable to ZUS up to the tax free limits.
- Where the cost of life insurance policies does not exceed 7% of the current average ZUS contribution for employees in a given enterprise, such costs will not be included in the ZUS base. This is, however, conditional upon policies being purchased for at least half the employees, and the right to benefit under the policy may not vest in the employee for at least 5 years.
2.Fiscal registers and secondary activities
With respect to art. 29 of the VAT Act, the understanding thereof up to 31 December 1996 meant that taxpayers selling goods or rendering services, including those in the scope of trading and catering services, to natural persons not carrying on business activity would lose the right to reduce output VAT by the amount of input VAT incurred on the purchase of goods and services where they failed to comply with the obligation to use a fiscal cash register.
The tax chamber in Warsaw holds the position that the aforementioned taxpayers lose the right to reduce output VAT by input VAT in proportion to the value of services rendered to natural persons not carrying on business activity. However, the Ministry of Finance takes the position that they lose the right to reduce output VAT by input VAT on all services rendered.
From 1 January 1997 taxpayers selling goods and rendering services, including those in the scope of trading and catering services, to natural persons not carrying on business activity lose the right reduce output VAT by the equivalent of 30% of input VAT incurred on the purchase of goods and services where the requirement to keep records of turnover and output VAT by using a fiscal cash register is not respected. From April 1 1997, the taxpayer is liable to a fine of up to 10,000 PLN for each transaction which is not properly registered.
3.Giving of goods "Free of Charge"
In a recent letter, the Ministry of Finance has clarified the question of giving over goods "free of charge". This occurs where, for example, a producer of cold drinks equips retailers with fridges to promote its products.
In the opinion of the Ministry of Finance, the treatment of such goods as being given for use free of charge is incorrect. In such a situation, the cold drinks producer clearly increases his sales by making fridges available to retailers. This applies regardless of the legal form of the agreement made between producer and retailer, since, in accordance with the Civil Code, it is the intention of the parties which should be taken into account, and not the literal text of a contract.
This means that producers "may, for the purposes of corporate income tax, include all costs incurred which influence (or may influence) the level of revenues achieved from the economic activity carried on".
4.Retained earnings
The Ministry of Finance has formulated a more unified approach to the question of retained earnings.
Essentially, where a limited liability company (Sp. z o.o.) passes a legally effective share-holders' resolution (i.e. such a possibility is clearly entered in the Company's Articles of Association), it is possible for the Company to retain its profits rather than paying them out to the shareholders as dividends.
In the Ministry's opinion, the tax consequences of this are as follows:
- i) no corporate tax liability;
- ii) no withholding tax on the value of retained dividends for the shareholders.
It must be understood that this applies only where there is a clear provision for this in the Company's Notarial Deed.
It should be noted that where earnings have been retained without any legal basis, the Supreme Administrative Court and the Ministry of Finance do not agree on the tax consequences. The NSA has concluded that the profits due for distribution, even though they are retained, are liable to 20% withholding tax. The Ministry of Finance recognises their liability to the withholding tax at the moment they are paid to the shareholders.
5.Directors' remuneration
In accordance with the new provisions of the general foreign exchange regulations, foreign persons are permitted to transfer abroad fees from undertaking duties on the board of a commercial trading company (Sp. z o.o. or S.A.).
6.New Special Economic Zones
The government is planning to open three new Special Economic Zones, in Legnica, Lodz and Wabrzych. The respective ordinances have already been approved by the Council of Ministers.
EU agreements limit the possibilities of opening new zones after 1999; there are plans, therefore, to open several more before that date. Potential areas for consideration include: Tarnobrzeg, Starachowice, Zarnowiec, Czestochowa and Koszalin, as well as an area near Krakow's Sendzimir steelworks.
In general, the preferential benefits offered for operating within the zones include:
- 10 years corporate tax exemption;
- Up to 10 subsequent years relief amounting to a 50% corporate tax exemption.
7.Changes to Special Economic Zone Legislation
Changes have been introduced to legislation concerning the Special Economic zones in the Katowice and Suwaki districts.
The changes are as follows:
"goods produced or services rendered within the zone (means) goods (produced) or services (rendered) if the value, reduced by VAT, of all materials used in production....which were not produced or services which were not rendered in the zone does not exceed 70% of the price of the product or service reduced by VAT."
- the 0.5% limit of outstanding liabilities to the State Budget has been increased. Now, entities operating in the zones will lose their right to relief where outstanding liabilities exceed 3% of taxes and other payments to the State Budget (e.g. ZUS premiums) considered separately on account of each of the above;
- the definition of goods created in the zones has been changed to read as follows:
Please note that there are exceptions to this rule.
8.Contributions in kind
On 11 June 1997, the Minister of Finance clarified this issue by signing a Decree altering the VAT regulations; in particular, contributions in kind have been exempted from VAT. Please note that this exemption has been backdated to any contributions made after 31 March 1997.
9.Free gifts
Please note that the tax office has recently targeted two different types of promotional campaigns regarding the giving away of free use of mobile telephones and gifts attached to publications.
We strongly advise clients to review their promotional marketing activities in this context. Should any assistance be required, please call your tax manager.
10.Stamp duty
Following discussions with the Ministry of Finance, a new opinion has emerged concerning stamp duty on loans from foreign shareholders. Contrary to an earlier formal opinion that no stamp duty arose on loans from a foreign shareholder where the funds were abroad at the time of entering into the loan, it now seems that in the Ministry's opinion, such loans are subject to stamp duty.
This information was correct as of 17th June 1997
Should you have any questions in relation to the above issues, please contact Oliver Sinton on:
Fax:(48) (22) 630 63 55
Tax laws and practise are constantly being revised and, whilst every effort is made to ensure that the information in this tax newsletter is accurate and timely, no decision should be taken on the basis of the information herein without first consulting with KPMG Polska Audyt.