Who qualifies, how dividends to non-resident shareholders are taxed, and the pitfalls that cost investors the regime

Guide for foreign investors and entrepreneurs | ATL Law 2026

Key takeaways for foreign investors Your nationality and tax residence do not matter – your legal form does. A Polish company can use Estonian CIT only if every shareholder is an individual. A Polish subsidiary of a foreign parent company does not qualify. Retained profits are not taxed. Tax of 10% or 20% arises only when profits are distributed, or on deemed distributions such as hidden profits. Dividend withholding tax can fall to 0–6% for small companies, depending on the tax treaty and on how the shareholder credit is applied. The method is not settled in the statute. Act before year-end: a bill now in the Sejm would abolish mid-year entry from 2027. The bill is not yet law.

 

Why foreign investors are looking at Estonian CIT

Since 2021 Poland has offered an optional distribution-based corporate tax regime, officially the lump-sum tax on corporate income (ryczałt od dochodów spółek) and universally known as „Estonian CIT”. Modelled on the Estonian system, it replaces annual taxation of profits with a tax that becomes payable only when the company pays money out to its owners. Since the 2022 liberalisation, it has become one of the most widely used tax options for Polish privately held companies.

For a foreign entrepreneur building a business in Poland, the appeal is straightforward: every zloty of profit can be reinvested in growth, equipment or working capital without an immediate tax charge. When profits are eventually distributed, the combined corporate and shareholder tax is lower than under the standard regime. The question we hear most often is whether these benefits are open to a company with foreign owners. The short answer is yes – but only if the investment is structured in the right way.

The eligibility test: three questions to ask first

Who holds the shares directly?

Article 28j(1)(4) of the Polish CIT Act requires that the shareholders of the company are exclusively natural persons. The provision imposes no residence or citizenship test. A Polish sp. z o.o. owned by a German, Dutch, American or Ukrainian individual – or by a group of individuals from several countries – can elect the regime on the same terms as a company owned by Polish residents.

The reverse is equally important. If even one share is held by a company, fund or partnership – Polish or foreign – the regime is unavailable. The law looks only at the direct shareholder, not at the ultimate beneficial owner. The classic inbound structure, in which a foreign parent or holding company owns a Polish subsidiary, therefore does not qualify.

Are there foundations or trusts in the background?

The same provision excludes companies whose individual shareholders hold property rights to receive benefits as founders or beneficiaries of a foundation, trust or other fiduciary arrangement. The only express carve-out is the family foundation. This matters for high-net-worth investors who use Austrian, Liechtenstein or similar private foundations, or common-law trusts, for estate planning. Polish rulings focus on the substance of the rights. In an August 2026 ruling, a shareholder who founded a foundation and sat on its unpaid board, with no entitlement to any benefits, kept the regime. Foreign trust deeds and foundation charters should be reviewed before electing.

Will the structure stay this way for four years?

The election covers four consecutive tax years and renews automatically. If a condition stops being met – for example, because a corporate investor, private equity fund or the founder’s own holding company acquires shares – the company loses the regime. It cannot re-elect for at least three tax years (36 months). Exit plans, investment rounds and option schemes need to be mapped against this horizon before the election is made.

The remaining conditions at a glance

 

Condition	What the law requires	Practical note for foreign-owned companies
Legal form	sp. z o.o., S.A., P.S.A., limited partnership (sp.k.) or limited joint-stock partnership (S.K.A.)	A Polish branch of a foreign company cannot elect – a Polish company is needed.
No shareholdings	The company may not hold shares, fund units or partnership interests in any other entity	No subsidiaries, joint ventures or holding role – in Poland or abroad.
Passive revenue	Less than 50% of revenue from interest, receivables, royalties, financial instruments or low-value related-party transactions	A risk for service companies working mainly for the owner’s other businesses.
Employment	At least 3 full-time employees (not shareholders) for 300 days a year, or civil-law contracts with at least 3 individuals costing at least 3× the average monthly salary	Shareholders and B2B contractors do not count. Lighter rules apply to start-ups and, in the first year, small taxpayers.
Accounting	Statutory accounts are not prepared under IFRS	Group IFRS reporting is fine, provided the statutory accounts follow Polish GAAP.
Notification	ZAW-RD form filed by the end of the first month of the first regime year	Mid-year entry additionally requires closing the books and preparing financial statements.

Article 28k also excludes, among others, financial institutions, companies using SEZ/Polish Investment Zone exemptions, companies in bankruptcy or liquidation and, temporarily, companies resulting from certain reorganisations or business contributions.

The tax rate is 10% for small taxpayers (2026 threshold: sales including VAT not exceeding PLN 8,517,000 in the prior year, i.e. EUR 2 million) and for start-ups, and 20% for other companies.

Getting profits out: dividend withholding tax for non-resident shareholders

When a company under Estonian CIT distributes profits earned during the regime, two layers of Polish tax arise: the company pays the 10% or 20% lump-sum tax, and it withholds tax on the dividend as remitter. For Polish residents the dividend tax is 19%. Under Article 30a(19) of the Polish PIT Act, it is reduced by 90% (10% rate) or 70% (20% rate) of the lump-sum tax attributable to the shareholder. The combined burden is roughly 20% or 25%, compared with 26.29% or 34.39% under standard CIT.

Foreign individual shareholders are taxed in Poland through withholding tax at source. A reduced treaty rate – typically 5%, 10% or 15% for individuals – requires a certificate of tax residence and due diligence by the paying company. The shareholder credit is applied to this withholding tax as well. How exactly the credit interacts with the treaty rate, however, is where interpretation comes in.

Two readings of the credit – and why it matters

• Favourable reading (common in advisory practice): the 90%/70% credit reduces the tax computed at the treaty rate. With a 5% or 10% treaty rate, Polish withholding tax can drop to zero or close to it.
• Conservative reading (literal): Article 30a(19) refers to tax „calculated under paragraph 1(4)”, i.e. at 19%. The credit reduces the 19% domestic tax, and the treaty rate only caps the result.

 

Treaty rate	Small company (10%): WHT conservative / favourable	Total Polish tax	Other company (20%): WHT conservative / favourable	Total Polish tax
No treaty (19%)	10% / 10%	20%	5% / 5%	25%
15%	10% / 6%	20% / 16%	5% / 1%	25% / 21%
10%	10% / 1%	20% / 11%	5% / 0%	25% / 20%
5%	5% / 0%	15% / 10%	5% / 0%	25% / 20%

Percentages of the distributed profit; total = company-level lump-sum tax + withholding tax. The credit cannot reduce tax below zero. Illustrative only – excludes taxation in the shareholder’s country of residence and the pay-and-refund mechanism.

Where meaningful distributions are planned, an individual tax ruling obtained by the company as remitter is the most reliable way to lock in the favourable reading.

Pay and refund above PLN 2 million

Where dividends paid in a year to the same related shareholder (generally a holding of at least 25%) exceed PLN 2 million, the pay-and-refund rules of Article 41(12) of the PIT Act may apply. The company then withholds at the domestic rate on the excess, unless it relies on a management statement or a tax office opinion, and the shareholder claims the refund. Distribution timing should be planned with this in mind.

Do not forget your home country

Low Polish withholding tax is only half of the picture. The dividend is usually taxable again where the shareholder lives. The residence country typically credits only the Polish withholding tax, not the lump-sum tax paid by the company, so a lower Polish rate may simply mean a smaller foreign tax credit at home. Some jurisdictions also apply controlled foreign company (CFC) or similar rules to individuals. These may tax undistributed profits of a low-taxed foreign company directly in the shareholder’s hands. The net benefit must be modelled across both countries before electing.

Seven pitfalls we see in foreign-owned companies

1. Shareholder loans. Foreign owners often fund their Polish company with loans. Under Estonian CIT, interest, fees and commissions on a loan from a shareholder or a related party are hidden profits, taxed at 10% or 20% by the 20th of the following month. A loan made by the company to its shareholder is a hidden profit in its full amount.
2. Fees to the owner’s other businesses. Management, IT, licensing or marketing fees charged by the shareholder’s companies abroad are related-party payments. Unless they reflect genuine services, a real business need and arm’s-length pricing, they risk being taxed as hidden profits. Transfer pricing documentation and evidence of performance are essential.
3. Board remuneration above the cap. Employment and board-appointment pay to a shareholder is excluded from hidden profits only up to the cap in Article 28m(4)(1): five times the company’s average salary, and no more than five times the national average. The excess is taxed as a hidden profit. Treaty rules on directors’ fees determine personal taxation.
4. „Lean” staffing models. Companies run with B2B contractors, or with staff employed by a sister company, may fail the employment condition. Falling short even by a few days costs the regime for the year.
5. Plans to bring in a corporate investor or to build a group. Any corporate shareholder or any shareholding held by the company ends the regime. Term sheets, shareholders’ agreements and expansion plans should be reviewed with this in mind.
6. Passive-revenue drift. A Polish company that mainly provides routine services to the owner’s group, or earns mainly royalties, can exceed the 50% passive-revenue threshold without noticing.
7. Defective mid-year entry. Entering during the year requires financial statements as at the last day of the preceding month, signed on time by all board members – including those based abroad. Late signatures have led tax authorities to challenge many elections. The pending bill offers relief for past cases, provided correct statements are filed by 31 January 2027.

What the 2027 bill would change

On 22 September 2026 the Council of Ministers adopted a bill amending the Estonian CIT rules, and on 24 September it was sent to the Sejm. The changes are intended to apply from 1 January 2027. The bill has not been enacted and its wording may still change. Its main elements are:

• No more mid-year entry: repeal of Article 28j(5); the regime could be chosen only from the start of a tax year. For calendar-year companies that miss 2026, the next entry date would be 1 January 2027 (ZAW-RD filed by 31 January 2027), and the one after that January 2028.
• Relief for past formal errors: mid-year elections from 2022 to 2026 with late or missing interim financial statements would be validated, provided correct statements are filed with the Head of the National Revenue Administration by 31 January 2027. Substantive conditions are not covered.
• More flexible employment test: employment and civil-law contract salaries could be combined under the expenditure-based variant.
• Hidden profits: clarification that benefits funded from pre-regime profits can still be hidden profits. The link to the right to share in profits remains a required element.
• Distributions after exit: a presumption that profits from the Estonian CIT period are paid out first, unless the dividend resolution expressly states otherwise. This reverses the current ordering rule in Article 28h(4).
• Non-business expenses: a statutory definition, expressly covering penalties, fines and late-payment interest.

FAQ

Can a Polish company owned by a single foreign individual living abroad elect Estonian CIT?

Yes. The law requires an individual shareholder and imposes no residence test. All other conditions must be met; the sole shareholder does not count towards the employment requirement.

Can our Polish subsidiary elect if the parent company is owned only by individuals?

No. Only direct shareholders are tested. Restructuring so that individuals hold the Polish shares directly is possible in principle. It requires a two-country tax analysis and a check of the reorganisation exclusions in Article 28k.

Can Estonian CIT be combined with IP Box or the R&D relief?

No. A company under the lump-sum regime does not compute taxable income under the general rules, so neither preference applies. For technology companies the two models should be compared.

Does leaving the regime trigger immediate tax on retained profits?

No. Tax on profits accumulated during the regime is due only when they are distributed or otherwise used. The resolution on distributing profits should clearly identify the period in which they were earned.

Bottom line

Estonian CIT is open to foreign capital – but only to foreign individuals who invest directly. For them, it can be one of the most efficient ways to operate in Poland: full reinvestment of profits without current tax, and Polish withholding tax on dividends that may fall to zero under a favourable treaty and reading. The regime is unforgiving, however, of corporate shareholders, owner financing, poorly documented related-party fees and thin staffing. With mid-year entry likely to disappear in 2027, the coming weeks are the time to test eligibility and prepare an election.

ABOUT ATL LAW

ATL Law is a Polish law firm dedicated to foreign investors doing business in Poland. We advise in English, German and Polish on tax, corporate, transfer pricing and employment matters, from market entry and structuring through ongoing compliance to tax audits and litigation.

On Estonian CIT, we review eligibility, model the combined Polish and home-country tax burden, restructure shareholder–company arrangements to manage hidden-profit risk, prepare individual tax ruling applications and handle dividend distributions to non-residents, including withholding tax procedures.

 office@atl-law.pl