What are the characteristics of the service tax

KorusLegal

Tax location Poland - a tax haven for German companies?

Poland is an attractive business location for German companies. Poland can also be seen as a tax haven for German companies. The taxation of the economy in Poland is significantly lower compared to Germany. In addition, the German-Polish tax agreement enables German companies to exempt Polish earnings (under certain conditions) from taxation in Germany.

This article compares the three main types of activity in Poland (a Polish branch, a limited liability company and a limited partnership). In addition, the advantages and disadvantages of each form are illustrated. Tax invoices have also been received for each form. This article covers the basic knowledge of the tax system in Poland.

General

Polish law recognizes many forms of foreign company activity. One form represents the operation of one branch in Poland. Foreign companies can also Societies set up in Poland.

Similar to Germany, Polish companies can be divided into two groups - partnerships and corporations.

Both Partnerships are the spółka cywilna (s.c.), the spółka jawna (sp. j.), the spółka komandytowa (sp. k.), the spółka komandytowo-akcyjna (S.K.A.) and the spółka partnerska (sp.p.). These companies correspond in this order to the German GbR, OHG, KG, KGaA and the partnership company.

To the Corporations belong to the spółkaz ograniczoną odpowiedzialnością (Sp.z o.o.), which corresponds to the German GmbH and which is comparable to the AG spółkaakcyjna (S.A.).

For tax and corporate law reasons, the spółka z ograniczoną odpowiedzialnością (Sp.z o.o. - GmbH) and the spółka komandytowa (sp. k. - KG) Interesting.

Therefore every German investor should consider one of the following options in Poland:

  • Establishment of a Polish registered branch

  • Establishing a subsidiary in the form of a Polish Ltd.

  • Establishing a subsidiary in the form of a Polish GmbH & Co. KG.

It is always an advantage for German investors to have one in Poland Permanent establishment in the sense of the German-Polish Agreement to Avoid Double Taxation (DPA-DE). Because in this way positive results can be achieved in taxation. The establishment of a mere agency (not a branch) in Poland will generally not lead to the establishment of a foreign tax-law operating establishment.

Polish branch

General

A branch of a foreign entrepreneur is explicitly mentioned in Polish law as a form in which foreign companies can conduct their economic activity in Poland.

In contrast to companies, the branch does not have its own legal personality. This means that it is legally part of the foreign company (society). However, due to the Polish regulations, the branch is becoming one separate accounting in Poland Committed.

The company is also obliged to use the Polish name "Oddział w Polsce" ("Branch in Poland") in Poland and to name the translation of the foreign company form (e.g. ALPHA GmbH sp. Z o.o. Odział w Polsce ").

The profits generated by the branch in Poland are then also taxable in Poland.

A branch has to be registered in the Polish commercial register, which will generate very manageable costs once (upon registration).

Bookkeeping is a continuous cost factor in Poland. There is a lack of bookkeeping offices in Poland that offer comprehensive German-speaking support (especially German-Polish management of trading books). A larger selection can be found when it comes to English-language support (including English-Polish management of the trading books).

Income / corporation tax

In the case of the Polish branch of a foreign entrepreneur, the profits made in Poland are to be offset against the profits of the foreign company. However, profits made in Poland are subject to taxation in Poland. The taxpayer is the foreign company (or, in the case of a foreign limited partnership, the partner of this foreign company).

In Germany, the tax paid in Poland is offset against the German tax, unless Art. 24 Paragraph (1) lit. c) DPA-DE applies. This rule applies if the branch has a Permanent establishment established within the meaning of the DPA-DE. Should the branch meet the requirements for a permanent establishment, the profits made by the branch in Poland will be subject to progression in Germany optional.

A prerequisite, however, is that the business activity carried out in Poland corresponds to the description of a permanent establishment according to Art. 5 DBA-DE.

A permanent establishment includes especially:

  • a place of management,

  • a branch,

  • an office,

  • a manufacturing facility,

  • a workshop / production facility.

A permanent establishment does not count:

  • Facilities or stocks of goods and merchandise used solely for the storage, display or delivery of those goods or goods belonging to the company;

  • Inventories of goods and merchandise which are maintained solely for the purpose of processing or processing them by another company;

  • a fixed place of business that is maintained solely for the purpose of purchasing goods or merchandise or obtaining information for the company;

  • a permanent business establishment that is maintained solely for the purpose of performing other activities for the company that are preparatory or ancillary activities.

A permanent establishment should therefore have such characteristics as business establishment, durability, power of disposition and corporate activity.

Furthermore, it should be noted that the branch office exclusively or almost exclusively active activities within the meaning of the of § 8 Paragraph 1 No. 1-6 of the German Foreign Tax Act (AStG), otherwise the credit method is used (no exemption from German tax). The freed-off activities include:

  • Agriculture and Forestry,

  • Manufacture, treatment, processing or assembly of things, generation of energy

  • Exploration and extraction of mineral resources,

  • Operation of credit institutions or insurance companies

  • trade

  • Services

  • Rental and leasing.

Example calculation for a German GmbH that does business in Poland either directly or through a permanent establishment:

The Polish branch (permanent establishment) is subject to Polish corporation tax. According to H.M., it can only be taxed at the lower tax rate of 9% (from 2019, previously 15%) if the foreign parent unit together with the Polish branch generates an annual turnover (including VAT) below 1.2 million euros.

In practice, the use of the 9% tax rate for Polish branches of foreign companies will not be achievable.

value added tax

The branch is subject to registration as a Polish one VAT payer.

When it comes to VAT, e.g. the transfer of raw materials from Germany to Poland will represent the intra-Community acquisition of goods within the meaning of the Polish law on goods and services tax.

Likewise, the delivery of finished goods to Germany - an intra-Community delivery of goods.

Bookkeeping

The branch of a foreign company in Poland is obliged to keep its own (separate) bookkeeping in Polish.

The trading books are part of the foreign company's bookkeeping. In the case of an audit by a tax office in Germany or an audit by the German auditor, these are checked together with the books of the main company. On the other hand, when the Polish tax office is checked, only the books of the branch are checked.

Problems

The branch of a foreign company causes many tax and accounting problems in practice. That is why many German companies shy away from setting up a Polish branch and rather opt for a Polish subsidiary.

The biggest problem is the cross-border shift of raw materials and products within the parts of the company.

Moving raw materials and products between the parent unit (Germany) and the branch in Poland will not constitute sales within the meaning of the Polish Corporate Income Tax Act. It is therefore difficult to determine the income and costs of income generation that are attributable to the permanent establishment in Poland, and consequently serve to determine the taxable income in Poland. With regard to the costs, a similar problem arises in the determination of the purchase price of the raw material by the mother unit, this problem basically only relating to the presentation of the actual price.

The bigger problem concerns sales when sales are made directly through the branch to the parent unit in Germany. The parent unit bears the sales costs and the branch in Poland - the production costs. The profit from the sale is calculated as income minus the above costs. The profit determined in this way must then be shared between the parent unit in Germany and the Polish branch. However, it is not possible for the Polish branch to transfer finished products to Germany at the value calculated on the basis of the production costs, since in such a situation no profit could be attributed to the Polish branch.

Polish limited liability company

(Sp.z o.o.) as a subsidiary

General

The Polish Sp.z o.o. is a corporation. This means that it is a legal entity that is independent of the shareholders. The shareholders of a Sp.z o.o. are generally not liable (as in Germany) for the company's debts (with very few exceptions).

The Sp.z o.o. can be founded without restriction by natural persons as well as companies from other EU member states. The foundation can be done both by means of a non-cash foundation (transfer of items such as machines) and a cash foundation (payment of funds).

Establishing in kind is much easier than in Germany. No expert assessment is required of the items brought into the company.

Taxes

Polish corporations (including Sp.z o.o.) are generally subject to taxation in Poland.

For the Profits the Sp.z o.o. only the Polish corporation tax (CIT) does not apply. There is no trade tax in Poland. Polish corporation losses can be carried forward over five years. The utilization of the losses of the Polish subsidiary is not possible in Germany. As indicated, there are two corporate tax rates in Poland:

  • 9% (from 2019) for annual sales (including VAT) below € 1.2 million

  • 19% for all other Sp.z o.o.

The Dividendsthat are paid out to the German corporation as the parent (e.g. a German GmbH) are taxed in Poland and Germany.

Polish tax law generally provides for a withholding tax of 19% for dividends.

For a partner resident in Germany (natural person), however, the withholding tax is reduced to 15% (Art. 10 Para. 2 DBA-DE). In Germany, however, the withholding tax or the partial income method is applied to natural persons and the Polish withholding tax is credited in accordance with Art. 24 Para. 1 lit. b) DBA-DE.

In the case of recipients subject to corporation tax (e.g. a German GmbH), dividends can be deducted from withholding tax freed(Parent-Subsidiary Directive), provided that the stake is at least 10% and is held for at least two years without interruption.

In other cases (e.g. distribution of a Sp. Z oo to a German GmbH & Co. KG) the dividend in Poland is subject to a tax rate of 15% ("withholding tax") and the tax paid in Poland is offset against the German tax, es unless Art. 24 Paragraph (1) lit. c) DPA-DE (establishment principle) applies.

A simplified calculation of the tax can be applied to the participation of a foreign GmbH and GmbH & Co. KG in a Polish Sp.z o.o. (Sales of Sp.z o.o. more than EUR 1.2 million) when applying the parent-subsidiary directive:

The tax burden at a small Polish Sp.z o.o. (Sales below EUR 1.2 million):

value added tax

The Polish Sp.z o.o. is subject to registration as a Polish VAT payer.

When it comes to VAT, the transfer of raw materials from Germany to Poland between the two companies will constitute the intra-community acquisition of goods within the meaning of the Polish VAT law. Likewise, the delivery of finished goods to Germany will justify an intra-Community delivery of goods.

Bookkeeping

The Polish sp. z o.o. as a corporation keeps its own account books in Poland. These books can only be checked by the Polish tax authorities because the company is not a taxpayer in Germany.

Problems

In the Participation of a German GmbH in a Polish Sp.z o.o.A problem can be seen in the fact that when the profits made in Poland are passed on to the shareholders of the German GmbH, there is an additional burden in the context of income and solidarity surcharge taxation.

However, it can be reduced, among other things, by applying the partial income method or the final withholding tax. Subsequent taxation as part of the partial income procedure was often avoided on the grounds of a correspondingly structured tax group.

The CIT rate of 9% was recently introduced into Polish tax law. For the application of this tax rate to the participation of a foreign corporation, it would be advisable to obtain an administrative interpretation of the Polish tax apparatus (this is associated with rather low costs).

Another problem is with the Special allowances the foreign shareholders (interest on loans). If the Polish subsidiary company is granted a shareholder loan, some problems arise.

The interest income of the partner resident in Germany is generally subject to a withholding tax of 5% levied in Poland. However, Germany taxes the interest on the recipient and offsets the Polish withholding tax.

The level of loan interest and the tax-tolerated volume of borrowing can generate further problems. Therefore, a shareholder external financing is usually not advisable for tax purposes.

Polish Sp.k. (Limited partnership) as a subsidiary

General

The Polish Sp.k. is a partnership. It is a legal entity that is independent of the shareholders. The shareholders of a Sp.k. but are personally liable (as in Germany) for the company's debts. The limited partner of Sp.k. is only liable to a limited extent specified in the articles of association (e.g. up to a sum of PLN 10,000). The general partner of a Sp.k. however, is fully liable for the company's debts.

This inadequacy can be remedied by using the so-called. SME models be avoided. The role of the general partner is assumed by a specially founded Sp.z o.o. that does not carry out any other activity. The limited partnership amount for the limited partner (natural person or another foreign partnership) is determined to be correspondingly low. The resulting structure then corresponds to that of a German GmbH & Co. KG.

The Sp.k. can in Poland like Sp.z o.o. be established without restriction by natural persons as well as companies from other EU member states.

The foundation can be done both by means of a non-cash foundation (transfer of items such as machines) and a cash foundation (payment of funds). Even at Sp.k. Establishing in kind is much easier than in Germany. As with Sp.z o.o. does not require an expert to evaluate the items brought into the company.

Taxes

The Polish Sp.k. is tax-transparent. This means that the company itself does not pay any income tax / corporation tax. Their shareholders are liable for tax. In a Polish GmbH & Co. KG (e.g. ALPHA Sp.z o.o. Sp.k.), two shareholders would be taxable in Poland.

Due to tax law requirements, the profit shares of both shareholders are most often divided in a ratio of 95: 5 up to 90:10, whereby Sp.z o.o. (depending on the size of the in the Sp.k.expected profits) 5-10% of profits not applicable.

The Polish Sp.z o.o. is installed as a participation of the German management company - i.e. the GmbH. Alternatively, the German GmbH can directly assume the role of general partner of the Polish Sp.k. take. The German GmbH & Co. KG then takes on the role of limited partner.

The Polish Sp.z o.o. Sp.k. is basically a Permanent establishment justify within the meaning of the DPA-DE. It should be noted that the requirements regarding the permanent establishment in accordance with the German-Polish tax agreement are met (in particular Art. 5 DPA-DE).

Furthermore, as with a branch office, it should be noted that the Polish Sp.k. exclusively or almost exclusively an active activity within the meaning of of § 8 Abs. 1 Nr. 1-6 AStG, otherwise the crediting method is used (no exemption from German tax).

If the permanent establishment principle of the DBA-DE is applied, Poland alone will have the right to tax the KG profits. If a permanent establishment is not established, the tax paid in Poland is offset against the German tax in Germany.

The income from a Polish Sp.z o.o. Sp.k. are taxed within the scope of the existing limited tax liability in Poland in such a way that the Polish corporation tax (CIT) is due on the profit share of the general partner (the Polish Sp.z o.o.); Polish income tax (PIT) will apply to the profit share of the limited partner (the German GmbH & Co. KG). In both cases the tax is 19% (possibly 9% for smaller Sp.z o.o.).

Example calculation for the taxation of a Polish Sp.z o.o. Sp.k. (pl.Sp.z o.o. holds 8% and dt. GmbH & Co. KG 92%; dt. Verwaltungsgesellschaft GmbH holds 100% shares in Sp.z o.o.):

value added tax

The Polish Sp.k. is subject to registration as a Polish VAT payer. As with the branch and Sp.z o.o. mentioned, the transfer of raw materials between the companies represents an intra-community acquisition of goods and the delivery of finished goods to Germany - an intra-community delivery of goods.

Bookkeeping

The Polish Sp.z o.o. Sp.k. is obliged to keep own account books in Poland. Both the Sp.k. as well as Sp.z o.o. to keep your own books (double bookkeeping), which can result in additional costs. These books can be checked by both the Polish tax authorities and the German tax authorities, because taxes are nonetheless paid in Germany and Poland.

Problems

When using a Polish Sp.z o.o. Sp.k. should strictly rely on direct business between Sp.z o.o. Sp.k. and their shareholders are waived. According to Polish law, although such transactions generate taxable income for the shareholders, they do not represent any costs for the Polish limited partnership.

Conclusion - which legal form is optimal?

Poland continues to be a very attractive location for German investors. This also results from the fact that the Polish taxes in Poland are significantly lower than the German ones. German companies can also exempt income generated in Poland from taxation in Germany under certain conditions.

However, the question arises as to the optimal form of participation in Poland.

You can get through a branch achieve very favorable tax effects. However, due to the lack of legal independence of a Polish branch, this solution can be very cumbersome in practice.

Therefore, one should consider either a Polish limited liability company (Sp.z o.o.) or a Polish limited partnership (Sp.k.).

For German GmbHs Better be worth it Polish limited liability company (Sp.z o.o.). Because this means that the business in Poland is taxed at 9% (for sales up to EUR 1.2 million) or 19%. The profit will then be exempt from taxation in Poland using the German-Polish tax agreement.

Should hang German GmbH & Co. KGs and German investors who participate in the subsidiary directly as natural persons get involved by means of a Polish limited partnership (Sp.k.) run the business in Poland. Thus, the income from Poland is only taxed once at a tax rate of 19%.