A limited liability company (LLC) is one of the most popular forms of business in Poland. Taxes are an integral part of any business, and LLC is no different. There is no hiding the fact that they can be challenging, so understanding the tax landscape is crucial.
This should be approached diligently, it is a duty that awaits every entrepreneur. Therefore, we want to introduce the topic to make an acquaintance a little easier. However, before you continue reading, we recommend firstly to read our previous article about LLC here. There are basic info about LLC which will surely help you better understand this article.
Then what do these taxes look like?
In a limited liability company, incomes are subjected to corporate income tax (CIT), which is charged on all of the company’s incomes, regardless of its source. Under this structure, companies settle their tax liabilities first, and only then are shareholders subjected to a flat rate of personal income tax (PIT) on their share of profits called dividends.
The subject of taxation in CIT is income (profit), i.e. the excess of revenue over expenses incurred. In PIT, however, it is the dividend itself, without any deductions.
Keeping the order – first CIT
The CIT rate is either 19% or 9% for small taxpayers and start-ups.
Companies that have their headquarters or management in Poland pay CIT on all incomes, regardless of where they are earned. Companies that do not have a registered office in Poland are subjected to tax liability only on incomes they earn in Poland.
Who can apply the 9% rate?
The reduced 9% rate can be used by:
- small taxpayers whose annual gross sales revenue (including VAT) did not exceed 2 million euros, converted at the euro exchange rate announced by the National Bank of Poland on the first working day of October of the previous tax year, rounded up to 1,000 PLN,
- whose revenues in a given tax year did not exceed a net income of 2 million euros, determined according to the euro exchange rate announced by the National Bank of Poland on the first working day of that tax year, rounded up to 1,000 PLN (usually January 2),
- Start-up companies – in the first tax year.
Take note: You cannot apply the 9% rate if the company was created through restructuring (for example, the division of an existing company), through the transformation of a sole proprietorship or a partnership, or other company (part of it or assets) with a value of more than 10 000 euros was contributed to the company.
Monthly and quarterly CIT installments
Tax returns are not filled during the tax year. Instead, there is obligation to pay installments.
Installments are usually paid monthly. Small companies and those starting a business have the option of paying installments quarterly.
The deadline for paying installments is the 20th of the month following the month or quarter for which it is paid.
It is also possible to pay installments in a simplified form, i.e. in the amount of 1/12th of the tax due in the annual tax return submitted in the preceding year.
Those who want to choose a simplified form of installments must:
- use this form throughout the whole tax year,
- pay installments on the dates specified for monthly installments,
- make at least one CIT settlement for the tax year.
Settlements
Companies are required to file an annual tax return by the end of the 3rd. month of the following year. If the tax year coincides with the calendar year, it will be 31st March of the following year. They also have to pay tax by the same date, if there is tax to be paid.
Are there any reliefs and deductions in CIT?
Yes, there are available reliefs like:
- donations to charities within a limit of up to 10% of income,
- donations for religious purposes within the limit of up to 10% of income,
- donations for vocational training purposes made to public vocational training schools,
- R&D relief (certain eligible costs),
- relief for innovative workers,
- prototype relief,
- relief for robotization,
- pro-growth relief,
- consolidation relief,
- relief for initial public offerings,
- relief for supporting sports, culture and education,
- relief for payment terminals.
On top of that, if you incur a loss in a given tax year, you can settle it (reduce the income earned) in the following 5 tax years.
Estonian CIT – what is it?
A special form of taxation is a lump sum on the incomes, or so-called “Estonian CIT“. In its case, taxation occurs at the time of distribution of profits from the company (dividends). Installments are not paid, which gives flexibility in choosing the moment of taxation. It allows free allocation of funds for current operations.
In addition, at the time of taxation, the effective tax rate is lower than in a traditional CIT (including CIT and dividend tax). For small companies it is only 20%, and for others it is 25%.
However, not every company can take advantage of this. A company can use Estonian CIT if:
- capital revenues do not exceed 50% of total revenues,
- shareholders are only natural persons,
- for at least 300 days a year, employs at least 3 people under an employment contract or incurs 3 times the average monthly salary on civil law contracts,
- does not hold shares (stocks) in other companies,
- do not prepare financial statements in accordance with International Accounting Standards.
Then how is the second taxation? – Dividend in Limited Liability Company In Poland
Dividend is a form of income from capital, paid in capital companies and LLC is one of them. It is paid to shareholders, usually based on the net profit of the previous fiscal year. Dividends can also be paid out of prior years‘ profits.
The shareholders’ meeting decides on the date of the dividend and payment. It must be no later than 2 months after the meeting. If the date is not specified, the dividend date is the date of the resolution. Dividends are subjected to a 19% flat income tax.
Shareholders may receive advances on dividends before year-end . But if the company incurs a loss or makes a smaller profit, the advances must be returned.
So, to sum up
It’s always a good idea to consult with professionals, such as an accounting company or tax advisor. Just to make sure your business is operating on the correct tax roll.
We know how complex and burdensome taxes can be. This is sometimes the biggest bane of the business. On the other hand, they are hugely important and unavoidable. That’s why we really recommend to make sure and, if possible, use the available help.
We will be happy to help you and relieve your burden in this intrusive topic. Our complete accounting company is ready and always open for entrepreneurs in Poland and beyond.
We will make sure that the thought of taxes is the least of your worries.
