Debt financing costs

What’s going to change?

The Polish New Deal introduces additional limitations on tax deductibility of the costs of debt financing, namely: 

• debt financing expenses paid to related or unrelated entities can be treated as tax deductible in the amount not exceeding PLN 3 million (c.a EUR 650k) or 30% of tax EBITDA (under prevailing jurisprudence the deductibility limit was considered a sum of these two values)  
• the costs of debt financing incurred for the benefit of related entities, which directly or indirectly finance equity transactions, will not be tax deductible. Equity transactions include in particular:  
  • acquisition or taking up of shares (stocks)  
  • acquisition of all rights and obligations in a company that is not a legal entity 
  • payment of additional contributions  
  • increase in the share capital or  
  • acquisition of own shares in order to redeem them 

Due to lack of grandfathering rules, new regulations may also concern debt financing costs resulting from financing granted before 1 January 2022.

What does it mean?

The introduced changes may result in increasing of the CIT effective tax rate.