Poland: Which companies can benefit from the “Estonian CIT” model introduced in Poland

 For whom will the “Estonian CIT” model be profitable

According to the Polish government’s declaration, capital companies will be able to switch to the so-called “Estonian CIT” model, which is intended to encourage investment. As a rule, profits generated by enterprises will not be subject to taxation as long as their partners do not decide on distribution of profits – which means that the moment of CIT payment is shifted to the actual profit’s distribution. At the same time, the profits should be reinvested within the stipulated 2-year or 4-year periods. An additional incentive to switch to the new system will be the reduction of the total tax liability due to PIT and CIT.

Limitations to the availability of the model | Declared for 4 years

Unfortunately, not all taxpayers will be able to use the new settlement method. Moreover, not all entrepreneurs will find it profitable in business terms. The basic conditions for using the “Estonian CIT” include:

In order to take advantage of the Estonian CIT, its use must be declared for a period of at least 4 years, with the possibility of automatic extension for another 4-year period.

Benefits of the “Estonian CIT” model

The benefits of switching to an Estonian CIT are:

As can be understood from the above requirements, the profitability of an Estonian CIT depends on the business structure and the investment plans held. Certainly, the biggest beneficiaries may turn out to be companies owned by private persons and which have not had time to implement their investment plans or are planning to incur large expenses. Entrepreneurs should also ask themselves whether they plan to consume the generated profits in the coming years.

Available for several business forms at the time of enforcement

The government proposal on the Estonian CIT shows that limited liability companies created by the way of transformation of civil partnerships, general partnerships or the transformation of sole proprietorship will also be able to use the new system. The company thus established will be able to benefit from the Estonian tax in the second tax year after the transformation. In connection with the above, it is worth analysing the change in the legal form of the current business activity in order to combine the preferences related to the Estonian CIT and the benefits resulting from the exclusion of liability of the partners of the limited liability company for her obligations.

Time to reshape ownership structer

An entrepreneur running a sole proprietorship bears full responsibility for liabilities with all his property, including private property. The partners are liable for the obligations of a civil law partnership or general partnership on the same terms. Considering that the costs of transforming a partnership into a joint-stock company are currently lower (the obligation to audit the transformation plan by a statutory auditor has been abolished), it may be an ideal moment to organize the ownership matters.

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LKOS Law Office’s lawyers are available to assist and to clarify any questions you may have regarding the above case or your current business law issues. Please feel free to contact our Specialist Partner Oscari Seppälä in respect to doing business abroad and international trade matters.

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*This article is for general information purposes only and does not constitute a legal advice.