Taxation in the IT Sector: Company Structures and Reliefs

Every capital company in Poland is subject to corporate income tax (CIT), generally 19% of income. There is also the problem of double taxation: first at company level, then when profits are paid to a shareholder. This guide reviews business structures, ways to withdraw funds from a company and tax preferences, including IP Box and Estonian CIT, that may reduce the combined tax burden. For IT businesses, a spółka z o.o. is often the most favorable form, but the right choice depends on the shareholder and management structure and estimated revenue.

We have omitted partnerships from this analysis because their tax system is complex. If you need an analysis of a partnership, contact us.

Spółka z ograniczoną odpowiedzialnością (sp. z o.o.)

Taxation of the company

Income of a spółka z o.o. is subject to one of two CIT rates:

• 19%: the standard rate
• 9%: the so-called small taxpayer rate, if revenue in the tax year did not exceed the equivalent of EUR 2 million in PLN

The 9% rate applies only to new entities, not to entities formed through a conversion.

Taxation of shareholders

Regardless of the company-level CIT, shareholders pay income tax on revenue associated with owning shares. There are several ways to withdraw money from a spółka z o.o.

Dividend

Dividend income is subject to a 19% flat-rate income tax. You cannot deduct tax-deductible expenses from this income.

Management board remuneration based on appointment

This option works particularly well in small spółka z o.o. companies where a shareholder also sits on the management board.

• Management board remuneration is a company expense and reduces income subject to CIT.
• It is taxed under the progressive scale: 12% on annual income up to PLN 120,000 and 32% above that threshold.
• It is not exempt from the 9% health contribution.

When can this be worthwhile? If the company earns exactly PLN 120,000 a year, or PLN 10,000 a month, it may be more favorable to pay yourself that monthly amount as remuneration than as a dividend, even after the health contribution. In that case:

• company-level tax: PLN 0
• shareholder and management board member tax: 12%

However, the company must leave a minimum profit subject to tax to avoid the minimum income tax, which is payable even when the company reports a loss.

Remuneration for recurring non-cash benefits

Recurring non-cash benefits are specified activities performed by a shareholder for the company repeatedly, rather than once, for remuneration, such as providing IT services.

What you need to know:

• You do not pay a health contribution on this remuneration. This is its main advantage.
• The company’s articles, including the provision on recurring non-cash benefits, must be executed as a notarial deed.
• Revenue is reported on the annual return and taxed under the progressive scale: 12% up to PLN 120,000 and 32% above that.

Combining it with management board remuneration. You can combine both payment methods. For example:

• management board remuneration: PLN 250 per month, with no income tax and only an approximately PLN 22.50 health contribution
• remuneration for recurring benefits: an effective income tax of 9%, after accounting for the PLN 30,000 tax-free amount deducted from the PLN 120,000 threshold

Remuneration for running a separate business that invoices your own spółka z o.o.

Another option is to operate a spółka z o.o. and, at the same time, run your own business that invoices the company.

When can this be worthwhile? When the company’s income exceeds PLN 120,000 a year. If you receive remuneration for sitting on the management board or for recurring benefits, the services you invoice to the company must not overlap with those duties.

Tax options available to a software developer’s business:

• general rules under the progressive tax scale, at 12% or 32%
• flat-rate tax at 19%
• lump-sum tax on recorded revenue, generally at 12%

The 12% lump-sum rate for IT can be particularly favorable for software developers. In some cases, an 8.5% rate may be available to taxpayers earning service revenue, for example from:

• designing websites or mobile apps (UX/UI design)
• making advertising space available
• data modeling, including creating data-processing solutions and data architecture

Limits of the lump-sum regime:

• You cannot deduct tax costs from revenue, such as software, licenses or computer equipment.
• The health contribution depends on revenue. The highest amount applies when annual revenue exceeds PLN 300,000. Contributions are adjusted each year, so verify the current rates.
• The lump-sum regime excludes the IP Box relief.

Combining both methods can allow you to withdraw funds from the company without dividend taxation:

• tax on payments based on appointment or recurring non-cash benefits: 12%
• tax on an invoice: according to the tax method chosen for your sole proprietorship (JDG)

Entering into a contract for specific work with your spółka z o.o.

You can enter into a contract for specific work with your own spółka z o.o. For a contract transferring copyright, you apply 50% tax-deductible costs, so the 12% tax is calculated on only half the remuneration.

Rules to know:

• The subject of the contract must not concern the shareholder’s standard duties.
• A contract transferring economic copyrights: 50% tax-deductible costs.
• A contract without a transfer of copyrights: standard 20% tax-deductible costs.
• Increased costs may not exceed PLN 120,000, the upper limit of the first progressive tax bracket.
• A contract for specific work does not create an obligation to pay social security or health contributions.
• The company, as the ordering party and tax remitter, calculates, withholds and pays the tax to the tax office.

Spółka komandytowa

Taxation of the company

Income of a spółka komandytowa is taxed at one of these rates:

• 19%: the standard rate
• 9%: the small taxpayer rate, for revenue up to the equivalent of EUR 2 million

Spółki komandytowe conducting innovative activity may use IP Box, with a preferential 5% CIT rate.

Taxation of partners

The general rule is 19% tax on profit distributions. The details differ by partner type.

General partner: single taxation

Although spółki komandytowe are subject to CIT, a general partner is still taxed once. When a dividend is paid, the partner’s 19% tax is reduced by the partner’s share of the CIT paid by the company. This is known as the general partner tax credit mechanism.

• If the company pays 19% CIT, the general partner pays no additional tax on a dividend distribution because the credit covers the tax.
• If the company pays 9% CIT, part of the dividend may be taxable, but the general partner’s effective tax will not exceed 19%.

Limited partner: partial exemption

• 50% of amounts paid to a limited partner is tax-exempt, up to a maximum of PLN 60,000.
• The exemption is applied separately for each limited partner and to income from each spółka komandytowa.
• In practice, it applies to distributions of up to PLN 120,000, because 50%, or PLN 60,000, is exempt.

Who cannot use the exemption? A limited partner who:

• is a management board member of the spółka z o.o. that is the general partner of the spółka komandytowa
• directly or indirectly holds at least 5% of shares in that spółka z o.o.
• is related, for example as a spouse, to a person who is a management board member or holds at least 5% of shares in the spółka z o.o. that is the general partner

If profits are distributed to a partner that is a CIT taxpayer, such as another spółka komandytowa or a spółka z o.o., a dividend exemption may be available if the relevant conditions are met.

Spółka komandytowo-akcyjna

Taxation of the company

A spółka komandytowo-akcyjna is subject to double taxation: CIT at company level and income tax when a dividend is paid, regardless of whether the partner is an individual or a legal entity.

CIT rates:

• 9%: small taxpayer, with sales revenue of up to EUR 2 million in the previous year
• 19%: other businesses

Taxation of partners

Dividend distributions to general partners and shareholders are subject to a 19% rate.

General partner tax credit mechanism

The general partner’s flat-rate tax is reduced by an amount equal to the product of:

• the general partner’s percentage share in the company’s profit
• the tax due on the company’s income

In practice: If the general partner’s tax is lower than that partner’s share of the CIT paid by the company, the general partner may pay no tax at all. This right applies to profits earned over five consecutive tax years. Even with very high income, you may keep taxation at a low level.

Benefits of a spółka komandytowo-akcyjna

• Neither the general partner nor the shareholder pays social security contributions.
• The obligation of partners in a spółka komandytowo-akcyjna to pay a health contribution was subject to legislative changes after 2022. Verify the current rules each time.

Prosta spółka akcyjna (PSA)

Taxation of the company

• Standard CIT rate: 19%.
• A PSA is subject to double taxation: once at company level and again when profits are paid to shareholders.
• The 9% small taxpayer rate is available if revenue does not exceed EUR 2 million.

Taxation of shareholders

Dividends to shareholders who are individuals: subject to 19% flat-rate tax. The PSA calculates, withholds and remits the tax as the tax remitter.

Dividends to shareholders that are capital companies: a dividend exemption may be available if the shareholder holds:

• at least 10% of the shares in the PSA’s capital
• for at least 2 years

Work or services contributed as capital: A shareholder making this type of contribution must account for social security and health contributions. The shareholder, not the PSA, pays these contributions directly, making this type of contribution less attractive.

Available tax preferences

A PSA may use:

• Estonian CIT
• the IP Box relief

IP Box: preferential 5% taxation

What is IP Box?

IP Box (Innovation Box or Intellectual Property Box) is a preferential way to tax income from products or services based on intellectual property. It allows income from qualified intellectual property rights to be taxed at 5% instead of the standard 12%, 19% or 32% rates.

It includes, among other things, rights to computer software or source code.

Conditions for a right to qualify

For a right to qualify for IP Box, it must meet all three conditions at the same time:

1. It was created, developed or improved by the taxpayer as part of research and development activity.
2. It is legally protected under separate legislation or ratified international agreements to which Poland or the EU is a party.
3. It belongs to the closed catalogue of intellectual property rights, including:
   • a patent
   • a protection right for a utility model
   • copyright in a computer program, the right most commonly used in practice

Who can use IP Box?

• Personal income tax (PIT) taxpayers, including sole proprietors, and corporate income tax (CIT) taxpayers.
• Most often, software developers who create software and sell it with copyrights to another entity, such as a software house or end customer.
• The lump-sum regime excludes IP Box. If you switched to the lump-sum regime, you cannot use this relief.

Taxpayer duties when using IP Box

To use IP Box, you must:

1. Identify each qualified intellectual property right separately in your accounting records.
2. Keep records that let you determine the revenue, tax-deductible costs and income or loss attributable to each qualified right.
3. Identify the costs attributable to each qualified right in a way that makes it possible to determine qualified income.

If you keep a tax revenue and expense ledger, you record this information in separate records.

Note on recordkeeping: Tax authorities require records to be kept “on an ongoing basis,” although administrative courts challenge this position. In the authorities’ view, it is not enough to create records later solely to claim the relief.

What research and development activity means for IP Box

A software developer’s activity must be closely connected with creating, developing or improving copyrights in a computer program and must qualify as research and development.

Polish tax offices take a pragmatic approach: they understand research and development activity to include creating, expanding or improving code within a particular business. The solution does not have to be revolutionary at a global, national or even industry level.

Estonian CIT: tax deferred until profits are distributed

Who can use Estonian CIT?

The following forms may use Estonian CIT:

• spółki z o.o.
• joint-stock companies
• spółki komandytowo-akcyjne
• spółki komandytowe
• proste spółki akcyjne

Who cannot use it?

Estonian CIT is not available to entities that:

• hold shares, stock or similar rights in other companies, meaning they have a structure other than a flat shareholding structure
• have shareholders that are not exclusively individuals
• earn 50% or more of their revenue from passive sources
• employ fewer than 3 individuals, subject to a relaxed condition for new businesses
• are financial businesses, lending institutions or operate in a special economic zone
• keep accounts under standards other than Polish accounting standards
• were formed through a type of reorganization specified in the law, which may temporarily delay entry into the regime
• conduct activity exempt from CIT
• are in liquidation or bankruptcy

How does Estonian CIT work?

The main rule is that until profits are distributed as a dividend, or a loss from a period before Estonian CIT is covered, the company does not pay income tax. This can improve cash flow and investment capacity because you do not have to distribute profits to the tax authority on an ongoing basis.

You pay the tax only when profits are distributed or the earlier loss is covered.

Estonian CIT rates

Effective taxation

Thanks to the tax credit mechanism, the combined tax burden is:

• about 20% for a small taxpayer
• about 25% for a large taxpayer

By comparison, under the general rules, the respective rates are about 26% and 34%.

The effective rate may be even lower if you do not distribute all of the company’s profits.

Poland Business Harbour: relocating business to Poland

Poland Business Harbour is a program that facilitates relocation to Poland for freelancers, startups and large companies.

The program includes:

• support for quickly starting business activity in Poland
• help relocating employees and their families
• legal and visa assistance through a “business concierge” service
• help connecting with local governments and Special Economic Zones, including temporary office and residential space
• connecting entrepreneurs with investors and grants for research and development activity

Program details: https://www.gov.pl/web/poland-businessharbour

Frequently asked questions

Which company tax form is usually most favorable for an IT business in Poland? A spółka z o.o. is often the most favorable structure for IT, but the right choice depends on the shareholder and management structure and estimated revenue. A spółka z o.o. may access the 9% CIT rate for revenue up to EUR 2 million, Estonian CIT with an effective combined tax burden of about 20%, IP Box at 5%, and several ways to withdraw funds without a conventional dividend. Together, these may significantly reduce the overall tax burden.

How can you legally withdraw money from a spółka z o.o. without immediately using a conventional dividend? The source describes four main routes: management board remuneration based on appointment, taxed at 12% or 32% but deductible as a company expense; remuneration for recurring non-cash benefits, with no health contribution and tax at 12% or 32%; invoicing the company through your own sole proprietorship, for example at 12% or, for selected IT services, 8.5%; and a contract for specific work transferring copyrights, with 50% tax-deductible costs. You can combine these methods, for example a minimal appointment-based salary, recurring benefits and a JDG invoice, to spread withdrawals across several sources and avoid dividend double taxation.

How does IP Box work for a software house or a company developing its own software? IP Box allows income from qualified intellectual property rights, including copyright in a computer program, to be taxed at 5% instead of the standard 19% CIT. The software must be created, developed or improved as part of the taxpayer’s research and development activity, and the taxpayer must keep separate accounting records assigning revenue, costs and income to each qualified right. Tax authorities require these records to be kept on an ongoing basis. Research and development does not have to produce a revolutionary solution; creating, expanding or improving code within the business may be enough.

When is Estonian CIT more favorable for a technology company than ordinary CIT? Estonian CIT is most favorable when the company reinvests profits instead of immediately distributing them to shareholders. The company does not pay income tax until profits are distributed, which can improve cash flow and investment capacity. On a dividend distribution, the combined effective tax burden is about 20% for a small taxpayer and about 25% for a large taxpayer, compared with about 26% and 34% under the general rules. The effective rate may be lower if the company does not distribute all its profits.

Can you use IP Box at the same time as the lump-sum regime? No. The lump-sum regime excludes IP Box. If you switched your sole proprietorship to the lump-sum regime, you cannot use the 5% preferential rate for income from qualified intellectual property. Before choosing a tax method, compare which option gives you a lower combined burden in your circumstances.