Taxation of a Polish Limited Liability Company

Setting up a spółka z ograniczoną odpowiedzialnością (sp. z o.o.)

Setting up a sp. z o.o. is a common and investor-friendly way to operate a business in Poland. This corporate form offers limited liability and a clear legal framework, but it also comes with certain tax obligations that foreign investors should be aware of.

1. Corporate Income Tax (CIT)

A Polish sp. z o.o. is subject to corporate income tax on its profits. The applicable CIT rates are:

• 19% – standard rate,
•  9% – reduced rate for small taxpayers (annual gross revenue below approx. EUR 2 million).

Tax is calculated on net profit (revenues minus deductible costs) and is payable monthly or quarterly, with annual reporting in the CIT-8 return.

2. Value-Added Tax (VAT)

If annual turnover exceeds PLN 200,000, or upon voluntary registration, the company becomes a VAT payer. The main VAT rates are:

•  23% – standard rate,
•  8%, 5%, 0% – reduced rates for certain goods and services

VAT returns are submitted monthly or quarterly, and proper bookkeeping is essential.

3. Withholding Tax on Dividends

When dividends are distributed to shareholders, a 19% withholding tax applies. The company is responsible for collecting and remitting this tax.

EU-based corporate shareholders may benefit from an exemption under the EU Parent-Subsidiary Directive, provided they hold at least 10% of shares for a minimum of 2 years.

4. Estonian CIT (Profit Retention Incentive)

Poland offers a modernised tax regime known as “Estonian CIT”, designed for reinvestment-driven businesses. Key features:

• No CIT on retained earnings – tax is only due upon profit distribution,
• Effective total tax burden of 20–25% (CIT + shareholder PIT),
• Particularly beneficial for growth-oriented companies with limited dividend payouts.

To qualify, the company must meet certain requirements (e.g. full Polish tax residency, simple ownership structure, minimum employment levels).

Summary

For foreign investors, a Polish sp. z o.o. provides a clear and stable legal form with relatively straightforward tax obligations. The standard CIT and dividend tax regime may be optimised via holding structures or EU tax directives, while the Estonian CIT offers tax deferral opportunities ideal for reinvestment-focused businesses.

Please note: The above does not constitute legal advice. For further information, please contact us at: kancelaria@kk-legal.com.pl