Company car in Estonian CIT in Poland – when 50% of expenses become hidden profit

A company car in Estonian CIT in Poland is often treated as a standard business tool. It may be used by managers, sales staff, management board members and employees responsible for client relations. The problem arises, however, when a company applies the Polish lump-sum taxation regime on company income commonly referred to as Estonian CIT, and the vehicle is used by a person related to the shareholder, while the car is not used exclusively for business purposes. In such a case, part of the expenses may be treated not as an ordinary business cost, but as hidden profit subject to taxation.

This issue was addressed in the judgment of the Supreme Administrative Court of Poland (NSA) of November 20, 2025, case ref. II FSK 397/23. Based on the facts described in the case and the available summaries of the ruling, where cars are made available to persons related to shareholders, 50% of vehicle-related expenses may be taxed as hidden profit if the car is not used exclusively for business activity. If, however, the company is able to prove exclusive business use, that mechanism should not apply.

What Article 28m of the Polish CIT Act means in practice

The starting point is Article 28m of the Polish Corporate Income Tax Act (CIT Act). Under the lump-sum regime on company income, taxation covers, among other things, income from hidden profits and income from expenses unrelated to business activity. These are two separate tax categories and should not be treated interchangeably.

The Act defines hidden profits as monetary or non-monetary, paid, unpaid or partially paid benefits made in connection with the right to share in profit, where the beneficiary is, directly or indirectly, a shareholder, partner, or an entity related to the taxpayer or to that shareholder or partner. This means that, for tax purposes, it is not enough to establish that the user of the car is an employee. It also matters whether that person is related to the company’s owner.

Particular importance should be attached here to Article 28m(4)(2) of the Polish CIT Act. This provision states that expenses connected with the use of passenger cars and certain other assets are excluded from hidden profits in full where they are used exclusively for business purposes, and only in 50% where they are not used exclusively for business purposes. In practice, this means that in cases of mixed use, the remaining 50% may create taxable hidden profit if the beneficiary is related to the shareholder or partner.

Employee status alone does not eliminate the risk

One of the most common practical mistakes is to assume that if the car has been entrusted to an employee, the matter is purely employment-related and falls outside the hidden profit category. Under Estonian CIT in Poland, this approach is too simplistic. If the user of the vehicle is a person related to the shareholder, the tax authority may assess not only the form of employment, but also whether the use of company assets is in fact a benefit linked to the ownership sphere rather than purely to employment.

This is particularly sensitive in family-owned companies in Poland, where close family members of shareholders are employed by the company and at the same time use company cars for purposes that go beyond strictly business travel. In that model, an employment contract alone does not automatically make the expense tax-neutral.

Mixed use is the main source of risk

The greatest risk arises where the car is not used exclusively for business activity. This concerns not only situations where the company explicitly allows private use of the vehicle. The problem may also arise where the company has no reliable evidence showing that the car was used solely for business purposes. The law clearly places the burden of proof on the taxpayer.

From a practical perspective, this is crucial. A provision in an internal policy, or a general employee statement, will usually not be enough if the actual use of the vehicle has not been properly structured and documented. The greater the user’s freedom, the more difficult it becomes to prove that the car was used exclusively for business activity.

Since January 1, 2023, the two tax regimes must be clearly separated

Following the amendment effective from January 1, 2023, the legislator added Article 28m(4a) concerning expenses unrelated to business activity. Here too, the rule is that expenses connected with the use of passenger cars and certain other assets are excluded from that category in full where the use is exclusively business-related, and only in 50% where the use is mixed. As a result, the legislator clearly separated cases concerning hidden profits from those concerning expenses unrelated to business activity.

In practice, this means that since January 1, 2023, when analysing company cars under Estonian CIT in Poland, the first question should be: who is the beneficiary of the benefit? If it is a shareholder or a related party, the focus shifts towards hidden profits. If, on the other hand, the vehicle is used outside the sphere of owner-related connections, the separate category of expenses unrelated to business activity becomes more relevant.

Where companies most often make mistakes

The first mistake is failing to distinguish between an employee who is not related to the shareholder and a person who is related to the shareholder. From an organisational perspective, both may have the same duties and use the same type of company car, but under Estonian CIT this does not necessarily lead to the same tax consequences.

The second mistake is the lack of real control over how the car is used. If the vehicle remains permanently at the user’s disposal, is parked at their home, and the company does not keep reliable records, it becomes very difficult to defend the position that the car was used exclusively for business purposes.

The third mistake is leaving the analysis until a tax audit or year-end closing. In practice, errors in this area can quickly translate into a tax arrears risk, because the lump-sum tax regime requires ongoing assessment of whether taxable income has already arisen on the company’s side.

How to reduce the risk in practice – checklist

If a company wants to reduce tax risk, it should treat company cars not only as part of its fleet policy, but also as an area of tax compliance in Poland. In practice, it is worth:

1. introducing clear internal rules for the use of company vehicles,
2. separately analysing the position of persons related to shareholders,
3. keeping mileage records or other reliable documentation confirming business use,
4. defining rules for parking the vehicle, handing over keys and settling running costs,
5. regularly verifying whether taxable income has arisen on the company’s side.

In the case of family-owned companies or entities with a more complex ownership structure, these steps are worth combining with a broader review in the area of tax advisory in Poland.

A company car in Estonian CIT in Poland is not always a tax-neutral work tool. Where the vehicle is used by a person related to the shareholder and the car is not used exclusively for business activity, 50% of the expenses may be classified as hidden profit. Since January 1, 2023, this category must also be clearly distinguished from expenses unrelated to business activity, which the Polish legislator has regulated separately. For businesses, the three key questions are therefore: who uses the vehicle, whether that person is related to the company owner, and whether the company can prove exclusive business use.

Legal basis:
Judgment of the Supreme Administrative Court of Poland of November 20, 2025, case ref. II FSK 397/23.

If you have any further questions or require additional information, please contact your business relationship person or use the enquiry form on the HLB Poland website.

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