On July 17, 2017 the Polish Government filed a draft law amending, among others, the 1991 Personal Income Tax Law and the 1992 Corporate Income Tax Law. The planned changes based upon the EU Directive 2016/1164 from July 12, 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.
In brief, the most significant changes related to the current CFC regulations re-define the CFC company, to be a company in which:
- The Polish resident taxpayer holds to at least 50% of either the capital, voting rights in the parent entities or in the profit distribution (thus increasing the current holding threshold of at least 25%); and
- The passive income of a CFC company constitutes at least 33%, (thus decreasing the current passive income threshold of at least 50%), while including in the passive income list proceeds coming from insurance, banking or other financial activity and from transactions with related entities in case the CFC company does not generate any economic added value or such value is insignificant;
- The effectively paid foreign income tax amount is lower than the difference between the Polish income tax rate (currently 19%) and the effectively paid tax amount, thus effectively lowering the threshold of the income tax rate qualifying the company for being recognized as a CFC company from a current nominal rate lower than 14.25% to a rate lower than 9.5% (50% of the 19% rate).
Also, the current exemption from the CFC regulation to foreign companies with an annual proceeds (turnover) of less that EUR 250,000 shall be removed.
The changes are expected to be passed by the Parliament, signed by the President and enter into force on January 1, 2018.
Please do not hesitate to contact the undersigned with any additional questions or comments regarding the above matters. For your reference below please kindly find the relevant link to the official website of the Polish Ministry of Finance (in Polish only, no English translation is available).
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