In just two weeks, the deadline for filing annual corporate income tax returns for most taxpayers will be looming. This may raise the question of how to reduce your tax liability. One solution is hypothetical interest.
Hypothetical interest, what is it?
From 2019, taxpayers taxed under general CIT rules may add to their tax deductible costs the product of the amount of additional payments contributed to the company or profits transferred to the reserve/supplementary capital and the reference rate of the National Bank of Poland applicable on the last business day of the year preceding the tax year increased by 1 percentage point.
An "additional" tax-deductible expense can be recognized in the year of the additional contribution or increase in reserve or supplementary capital, as well as in the next two immediately following tax years. However, there is a limit to this expense. It cannot exceed PLN 250,000 in a tax year.
The right to correct the declaration
However, can companies that did not make additional contributions in 2024 or that did not transfer profits to reserve capital benefit from hypothetical interest? They can do so in two cases:
- The hypothetical interest could have arisen in 2022-2023 and has not been fully settled.
- Despite meeting the conditions, the taxpayer did not take into account the hypothetical interest in previous years.
The first case is possible due to the settlement of the additional tax-deductible cost over a three-year period. Therefore, in 2024, hypothetical interest accrued over the previous two years can be settled.
The second scenario is possible due to the taxpayer's right to submit an amended return. Although amended returns are most often associated with situations where the initial return fails to include all income or excessive expenses, resulting in the need to pay back overdue tax, there are no contraindications to submitting an amended return to improve one's tax situation.
Therefore, if in the period 2019-2023 additional payments were made to the company or the profit was allocated to supplementary or reserve capital by means of a resolution, it is highly probable that it will be possible to submit a correction to the tax return and receive a refund of the overpaid tax.
Loss of the right to costs
To benefit from the deductible costs of hypothetical interest, however, it is not enough to simply make additional payments or increase the reserve capital. It is also crucial that the retained amount is not spent for a specified period. The law requires that the repayment of additional payments be made no earlier than three years after the original date. The same applies to retained earnings. They cannot be spent before the original date.
If the retained amount is spent in whole or in part, the deducted costs of obtaining income should be treated proportionally as income.
This article is for informational purposes only and does not constitute legal advice.
Legal status as of March 17, 2025
author/editor of the series:
Be the first to receive our articles and legal alerts, straight to your inbox! Sign up for our newsletter by clicking the link or contact us at social@kglegal.pl to personalize your content.
