The main assumption of the model is that company will not have to pay income tax until they decide to distribute the company’s earning.
The Estonian CIT scheme may be applied only by companies meeting a number of criteria. In particular:
- the company has to submit a notification on chosing this type of taxation by the end of the first month of the first tax year;
- operating income did not exceed PLN 100 million in the last year;
- their shareholders are only natural persons;
- such companies may not hold shares in other companies’ capital as well as participate in other forms of holding structures;
- revenue from passive activities (such as interest, sureties and sale or implementation of financial instruments) will need to constitute less than half of total revenues;
- the company does not prepare financial statements in accordance with IAS;
- additionally, the company that want to use the solution will have to:
- maintain average employment of at least three employees who are not its shareholders; or
- incur monthly expenses in an amount equal to at least three times the average monthly salary in the business sector, on the account of payment of salaries to at least three natural persons employed under a contract other than an employment contract, who are not shareholders.
Moreover, the companies willing to apply the solution will have to increase their direct investment expenditures by 15 percent (but no less than PLN 20k) over two consecutive years or 33 percent (but no less than PLN 50k) over four consecutive years, unless, in two consecutive tax years covered by flat-rate taxation, the company incurred expenses related to remuneration of employed naturalpersons, except for shareholders, in an amount higher by 20 percent (not less than PLN 30,000) vs the amount of such expenses incurred in the tax year preceding the two-year flat-rate taxation period.
These conditions will be relaxed for companies starting their business. For example, the conditions for using the Estonian CIT solution will be deemed satisfied if the company, in the first year of its operations, achieves an average revenue of PLN 100 million and meets the passive income requirement. Moreover, the requirement of keeping at least three natural persons employed will be waived in the first year of business and two consecutive tax years.
The Estonian CIT scheme may be applied for four years (with an option of extension).