1. Amendments to tax law in 2019
2. Cars used in business activity will be reconciled under new rules
3. The depreciation limit for improved fixed assets will increase
4. Only owner-like possessor is authorized to make supply
5. The announcement of a revolution in income taxation

1.    Amendments to tax law in 2019

New year will bring tax changes, among other in terms of:

• Withholding tax – it will not be possible to automatically apply exemptions or reduced tax rates resulting from double tax treaties, if payments to a specific taxpayer exceed PLN 2 million in a given tax year;
• Exit tax – incomes from unrealized profits will be taxed due to the change of tax residence of companies (19%) and individuals (3%);
• New CIT rate of 9% – it will apply to revenues other than from capital gains; entities whose revenues do not exceed PLN 1 million 200,00 euro will benefit from it;
• Notional interest deduction (NID) – tax-deductible costs will include “costs” of own financing (profit retained in the company or payment to the company) being equivalent to the costs of debt financing;
• „Innovation Box” – revenues from intellectual property rights, such as patents or protection rights for a utility model, will be taxed at 5% tax rate.

2.    Cars used in business activity will be reconciled under new rules

From the new year, the rules for reconciliation expenses for company cars, including leased ones, will be changed:

• the amortization limit for passenger cars, which constitute as a fixed asset will be increased from EUR 20.000 to PLN 150.000 (internal combustion cars and hybrids) and up to PLN 225.000 (electric cars);
• only 75% of the value of expenses related to using a car will be included in the tax-deductible costs if a car is used for mixed purposes; the right to deduct 100% of expenses will not change for the taxpayers using cars only for business purposes – in this respect it will be mandatory to keep records of car usage (with the possibility of using the records kept for VAT purposes);
• the rules for the settlement of expenses incurred on the basis of the vehicle mileage records will be stricter (so called “kilometrówka” rules); after changes come into force, the obligation to run a mileage will be abolished, however the taxpayer will be entitled to settle only 20% of the expenses incurred while using the car;
• limits to the tax-deductible costs resulting from operating lease contracts (lease fees) will be implemented:
• PLN 225.000 – for the electric cars;
• PLN 150.000 – for other cars.

1. The depreciation limit for improved fixed assets will increase

Pursuant to the amendment to the PIT and CIT Act, taxpayers who entered fixed assets into a register until 31 December 2017 and subsequently improve them, will be entitled to one-off recognition of PLN 10.000 as a tax-deductible costs in 2018.

Raising the limit, which currently amounts to PLN 3,500, is a correction to the last year’s amendment from October 27, 2017. The amendment provides for an increase in the amount of one-off depreciation, i.e. the possibility of recognizing a given fixed or intangible asset as taxable costs, without the need to settle this expense in time. Another amendment was necessary, as the current regulations did not apply to improvements.

1. Only owner-like possessor is authorized to make supply

According to the judgment of the Supreme Administrative Court of October 4, 2018, reference number I FSK 1815/16, a dependent possessor (i.e. a person having the right to use, lease, pledge or lease) cannot transfer ownership. An invoice issued for such a sale will document an event that never occurred.

In the case at hand, a civil company sold the building constructed by it on the land owned by the company’s partner in favor of another entity (joint-stock company), which deducted input VAT due to the invoice received. The head of the tax office, however, recognized that the invoice did not give the right to deduct the tax, because the civil company being the seller of the real estate was not its real owner and therefore could not sell it. Only the partner of the civil partnership had the right to make the supply of the property and to issue an invoice documenting the sale.

The Voivodship Administrative Court disagreed with the tax authority explaining that, although the civil law partnership was not the owner of the property, used it as the owner, and the fact of having a property is sufficient to transfer economic power, i.e. make a supply within the meaning of the VAT Act.

The Supreme Administrative Court disagreed with this assessment and concluded that the only person authorized to dispose of the property was an owner-like possessor and he was entitled to make a supply of the property to the joint-stock company. This right was not owned by a civil partnership, which only used the property as a dependent possessor.

5. The announcement of a revolution in income taxation

Although on January 1, 2019, many tax changes will come into force real revolution in income taxation is yet to come.

The Ministry of Finance informed about the planned removal of the PIT and CIT Act from the list of Polish legal acts. Three other tax acts should be introduced in their place. The acts will concern taxation of: (1) income from work, (2) economic activity, and (3) capital income.

The conceptual work on this reform is to be a priority for the Ministry of Finance in 2019. In 2020, a package of changes could be proceeded by the parliament.

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