Small CIT for small capital companies. Potential benefits – for whom?
After reducing the CIT rate from 19% to 15% in 2017, a new change awaits for small enterprises at the beginning of 2019. After signing the law by the President, it is already certain that on 1 January 2019, the CIT rate for small taxpayers and taxpayers starting business activity will amount to 9%. The reduction of rates is to encourage entrepreneurs to run capital companies.
Reducing the CIT rate is very attractive. It is estimated that the reform will cover 400,000 companies. However, the Act contains several pitfalls, which is why entrepreneurs should carefully read the Act before the end of the year.
- The tax is intended exclusively for commercial companies operating under commercial law. Such companies include: a limited liability company, a joint-stock company and a limited joint-stock partnership. This means that the tax rate for economic activities carried out by natural persons has not been reduced. Personal income tax (PIT) will still be 19% for a flat rate, 18% and 32% for progressive rates.
- The companies with the value of sales revenues of up to 1.2 million euro per annum will be entitled to apply the lower rate. Companies slightly exceeding the limit have to be patient because in 2020 the limit will be raised to 2 million euros. It is worth remembering that in this case, the legislator means the total revenue, including VAT.
- Tax reduction also introduces limitations when making a contribution. Contributions in excess of 10,000 euro will result in the payment of 19% tax. In this case, the company that made the contribution will also loose the preferential rate. Therefore, it is worth to be careful when starting operations, making sure that the capital contributions paid in as capital do not exceed 10,000 euro.
- Any company that benefits from a reduced tax must also remember that it will a 19% tax on income derived from capital, for example from the sale of securities.
- The legislator also secured against the mass transformation of sole proprietorships and partnerships into capital companies. Any such conversion is associated with the loss of the right to reduced CIT rates.
The status of a small taxpayer entitling to a reduced CIT rate of 9% will undoubtedly be a great help in starting your adventure with running a business in Poland. Changes in the tax on natural persons (PIT) are not provided for, the legislator supports this with the wide range of possible options.
Capital companies are a safer form of doing business. They have separate legal personality and are responsible for their liabilities with their own assets. The liability of the partners is excluded in this respect. Capital companies also have disadvantages. They have higher costs of establishing and the obligation to run the so-called full accounting. The introduction of a reduced CIT rate in 2019 will certainly be an additional advantage when selecting this form of business by new entrepreneurs.