Polish Deal

Day 26 July 2021 The Ministry of Finance has published a long-awaited draft law amending the Personal Income Tax Act, the Corporate Income Tax Act and some other laws in connection with the announced tax changes concerning the so-called scheme "Polish Deal” or rebuilding the economy after the coronavirus epidemic.

On 29 October 2021 There was a new, modified bill amending - after a public consultation, an auto-amendment from the government and amendments to the Senate. The project assumes a number of revolutionary tax changes that significantly transform the tax system in Poland.

The content of the bill itself counts 277 the parties, and the reasons given to them 267 pages. In our view, it is worth reading the amendments in order to identify the opportunities and risks that are emerging. To this end, we have prepared a series of articles that will facilitate this task.

In Module No 4 We will address the most important changes made in particular under the PIT and the lump sum on recorded revenue.

Inability to deduct health contributions – tax scale and linear tax

On the basis of the amending law, the provisions which, in the current state of the law, form the basis for deducting the income tax contribution to health insurance will be abolished. 7.75% the basis of its dimension. As a result, not only employees, but also entrepreneurs accounting for general rules (tax scale) will pay it at the same rate 9% from the tax base, i.e. without deduction.

The government also changed the original project Polish Deal as regards the amount of the health contribution to taxable persons benefiting from linear taxation. After the changes, the health premium for liner tax will be 4.9% Business income (originally 9%).

However, the amount of the health contribution will not be lower than 9% the minimum remuneration for work per year. In 2022 the amount of the minimum health premium for linear settlement will therefore be 270 PLN.

If the government had decided to introduce a previous version of the amendments to the liner tax, this could have led to a significant part of taxpayers moving away from this form of accounts. This would mean a situation in which to a linear tax 19% should be added 9% health premium.

As a result, the entrepreneur would have to pay effectively until 28% tax.

No possibility to deduct health premium - lump sum, lower flat rate

As proposed Article 81(2e) Public-funded health care benefits (the NFZ Act), the basis for the assessment of the contribution to health insurance for persons carrying out business activities who apply flat-rate taxation on the basis of recorded revenue will depend on the level of income achieved.

• For revenue to amount 60,000 PLN amount 60% an average monthly salary.
• Taxable persons with income from 60,000 PLN to 300,000 PLN They will pay a contribution on the amount 100% an average monthly salary.
• Taxable persons with income above 300,000 PLN must count with the base of the dimension in height 180% an average monthly salary.

Average monthly remuneration refers to the enterprise sector In the fourth quarter of the previous year, including payments from profits announced by the President of the Central Statistical Office in “Polish Monitor”.

It is worth noting that initially the health contribution was to be 1/3 flat rate. For example: taxed entrepreneur 15% At a flat rate, he would pay a health premium of 5% revenue, i.e. its actual burden would increase to 20%.

The Act also provides for a minimum reduction of the lump sum rate for service providers:

• • architectural and engineering,
• • technical research and analysis services,
• • specialist design
• • for medical professions, i.e. Among others, doctors, dentists, veterinarians, dental technicians, felchers, midwives, nurses, psychologists or physiotherapists
• from 15% to 14%,
• and a greater reduction in the rate for certain revenues related to the provision of IT services from 15% to 12%.

Inability to deduct health contributions – tax card, liquidating this form of settlement for new taxpayers

The changes will also take place in the field of taxation in the form of a tax card – as the Ministry explains, taxation in this form will no longer be able to select new taxpayers (Article 56 Act Polish Deal).

In addition, in accordance with the amending Act, under Article 81 Public-funded health care benefits legislation is planned to be added section 2z, in which it is stated that the basis for the health contribution for tax-accounted entrepreneurs will be the amount of the minimum monthly remuneration applicable on the day 1 January the year concerned. In this case, too, it will no longer be possible to deduct health contributions from the amount of tax (repealing Article 27b in the PIT Act).

Extension of the list of components used in the activity which are eligible for operating income after their withdrawal

Currently, in accordance with the provisions of the PIT Act, revenues from the sale of fixed assets or intangible and legal assets after their withdrawal from the activity or after the liquidation of the activity are eligible for income from business activities if the sale took place during the period until 6 years after withdrawal or liquidation.

However, for movable goods used as part of an economic activity on the basis of operating leasing (often cars), the situation is different. Under the PIT Act, such components are not regarded as assets of the company and are not depreciated. Therefore, when lessee the purchase of such a private asset, the proceeds from its sale are not eligible for the income from business activities and provided that the sale is made after the expiry of the 6 months from the date of acquisition, it is not taxed at all.

The Ministry of Finance plans to prevent taxpayers from exercising this preference. As proposed Article 14(2)(19) PIT Act, sale of purchased from operating leasing to private fixed assets (e.g. cars), if any 6 years after their withdrawal from business, it will generate income from business.

Changes in the depreciation of assets acquired before their use in business

Under the PIT Act, for the purposes of amortisation of fixed assets and intangible assets, the purchase price is considered as the initial value. In the case of components that were acquired and used in the private property of a natural person before being accepted for use in the company, the purchase price may differ from the actual value of such component.

For example, a passenger car that was acquired 5 years earlier and was used exclusively for private purposes, at the date of its adoption for business use, is of lower value. Meanwhile, it is depreciated like a new permanent measure. Consequently, even when a permanent measure is taken after several years, depreciation deductions can be made from its initial value, which is undoubtedly a positive approach for taxpayers.

The Ministry therefore decided that the initial value of the asset in question should be determined either at the purchase price or at the market value if it is below the purchase price. This solution will cause the asset to be depreciated from its real value. As a result of this change, taxpayers will make lower depreciation write-offs than assets entered into the company (change under Article 22g(1)(1) PIT Act).

Changes in the taxation of rental income outside of business and the issue of depreciation in this respect

The project also introduces the same rules on taxation of rental, sub-rental, lease, sub-rental and other contracts of a similar nature carried out outside economic activity. These revenues will now only be taxed at a lump sum on recorded revenue.

As reported by the Ministry, the lump sum for this revenue will not change and will be 8.5% revenue to amount 100,000 PLN and 12.5% revenue from surplus over amount 100,000 PLN. In such cases, the costs incurred will no longer be taken into account in the accounts.

In turn entrepreneurs earning rental income they will still have the choice of the method of taxation: by lump sum, 19% a linear tax or a tax scale (17% or 32%).

In addition, there will be an exemption from the tax costs of depreciation off buildings and dwellings. The situation will therefore be similar to that of land and the right of perpetual use, which are also not amortised. The Resort argues that the changes in the matter in question are due to the fact that the value of such assets does not fall and, in principle, increases. Consequently, residential properties used for their business will no longer be amortised (in this case both in PIT and in CIT).

Health contribution to board members appointed by resolution

Based on Article 15(1) Amending law, health contribution of 9% income will also be paid from 2022 Board members appointed by resolution. They may receive remuneration without concluding an employment contract or contract with the company.

The basis for payment of remuneration in this case is the resolution of the meeting of shareholders to appoint a person to the board of directors and is currently not subject to social or health insurance obligations. After the changes, the remuneration received by the members of the Management Board on the basis of the resolution will entail the obligation to pay 9% health insurance contributions that cannot be deducted from tax.

Increase second tax threshold to 120,000 PLN, increase of the tax-free amount to 30,000 PLN

Ministry of Finance proposes an increase to 120,000 PLN income threshold from which it starts second income threshold to which it applies 32% tax rate. Consequently, 12 the income threshold referred to on the tax scale will be changed years – this will result in an increase in the above-mentioned range from 85,528 PLN to 120,000 PLN income per year. According to the Ministry: "The revenue flow will be adapted to the new reality in which wages in Poland have doubled over the years".

Another positive issue is the increase to 30,000 PLN „tax-free amounts’ for all taxpayers of personal tax calculated on a tax scale (currently this amount is 8,000 PLN). Therefore, there will be an increase in the tax reduction amount to 5,100 PLN (30,000 PLN x 17% instead of current 8,000 PLN x 17% = 1,360 PLN).

Relief for the middle class

It is intended to cover taxable persons employed on the basis of a business relationship, employment relationship, overlay work, cooperative employment relationship as well as taxable persons gaining income from non-agricultural business activities (not included in the original project).

Thus, it will not be used by employees who work under a civil contract or a work contract. The credit will be deducted from the income of the amount concerned, the amount of which will depend on the annual revenue level i.e. Considering the range from 68,412 PLN to 133,692 PLN Annual 5,701 PLN to 11,141 PLN monthly.

These revenues will be taken into account revenue reduced by 50% tax-deductible costs for creators’ exercise of copyright and performing artists’ exercise of related rights, or for their disposal of those rights, specified under Article 22(9)(3) PIT Act. In the original draft, the legislator decided to exclude them.

The relief amount for the middle class will be determined by two separate designs. This choice will depend on the annual revenue (divided from 68,412 PLN to 102,588 PLN and 102,589 PLN to 133,692 PLN).

It is worth mentioning that in this respect the wording contained for the calculation of formulae is also ambiguous. The legislator used the concept of "cost of operating" rather than the standard cost of obtaining income.

That's a big difference. For example, buying a car for 100,000 PLN is the cost of business. On the other hand, the taxpayer will only consider the cost of obtaining revenue through depreciation payments per year. 24,000 PLN, a per month 2,000 PLN.

Thus, it seems that the entrepreneur will have to count in order to comply with the rules. two revenue. first for the purpose of paying the PIT advance, i.e. income minus the cost of obtaining income. second for the purpose of a new relief, i.e. revenue less operating costs.

Relief for return (receipt for arrival)

The relief for return will have the form of tax exemption. According to the new Article 21(1)(152) Tax exempt PIT laws will:

• revenue from business relationship, employment relationship, overlay work, cooperative employment relationship,
• revenue from contract contracts concluded with the company; and

revenue from non-agricultural business activities, obtained by the taxpayer who transferred his residence to Poland, as a result of which he is subject to an unlimited tax obligation in Poland. In this case, taxpayers will be able to benefit from the exemptions, who:

• tax revenue from this source according to general rules,
• they account for a line tax,
• tax revenue from qualified intellectual property rights,
• they account for a lump sum on recorded revenue.

The right to apply the exemption will be granted to the taxpayer by 4 successively, the following tax years:

from the beginning of the year in which the taxpayer transferred his residence to Poland

Or from the beginning of next year.

The taxpayer will choose a better solution for him, so a year from which he will benefit from the relief. The relief for return will be subject to more conditions required to meet the previous project.

It will apply to the taxpayer who settled in Poland if for a period of at least 3 the calendar years immediately preceding the year of the move to Poland and the time from the beginning of that year until the moment of the transfer did not have a place of residence in Poland and if:

• holds Polish nationality or nationality of the listed country In Annex 5 (essentially EU, EEA countries) or
• has a Polish card or
• has permanent residence in the countries listed In Annex 5, or in any country – except that in such a case the additional condition is to have previously resided in Poland, which has continued continuously for a minimum 5 subsequent calendar years and
• has the necessary evidence to establish the right of exemption, in particular the residence certificate, and
• did not benefit from this exemption before (this means that the relief can only be applied once), in the event of the relocation of the place of residence to Poland.

The exemption will be limited by an annual limit of a total of 85,528 PLN. It is worth mentioning that, for example, relief for young people to 26 the life of the taxpayer will not increase that limit. The application of the relief will also require a declaration.

As the Ministry of Finance argues, the relief to return will enter into force by day 1 January 2022 and will apply to taxpayers who have moved their place of residence to Poland after 31 December 2021 and revenue from 1 January 2022

Importantly, it is not known at this moment whether to charge a health contribution from this new category of PIT exemption or not. The legislator did not introduce separate, specific rules, as is the case with regard to relief for persons to 26. year of age, necessity to pay the health contribution.

In this context, it should be assumed that the general rule contained in the NFZ Act, i.e. the zero health contribution to the zero PIT (Article 83(2) This Act). The Ministry of Finance disagrees. Minister Sarnowski announced the publication of tax explanations in this regard.

Attention should be paid to the revised Article 79 Health Act, according to which "the contribution to health insurance is 9% the contribution base, subject to Article 79a, Article 80, Article 82 and Article 242".

Therefore, this provision does not mention Article 83, which both refers to a zero health contribution (section 2), and to reduce it to a hypothetical PIT, which results in a health premium (section 2a). An analogous problem arises with the newly added (as described below): 4+ in PIT for parents as well as in relief for working seniors.

What is very important, the name of the relief imposed by the ministry may be misleading, as the preference will also cover immigrants (although from certain countries – the original version of the project did not provide for a restriction) who for the time being first they will settle in Poland. They will also be able by four years pay taxes on preferential terms. This is because the project only partially makes the application of this relief dependent on the criterion of nationality or previous residence.

The proposed changes can be assessed as unfair to current taxpayers. It seems that a priority for the legislator should be First, the fiscal relief of their own citizens, who may feel that foreigners are treated better in their country than they are.

Flats for foreign residents transferring tax residence to Poland

Persons who are foreign tax residents for at least a period of time 5 to 6 years preceding the year of acquisition of the status of Polish tax resident who decide to transfer their residence to Poland, are to be able to apply a lump sum on foreign income for a period of time 10 years of subsequent tax years, from the tax year in which the taxpayer transferred his residence to Poland.

This solution is regulated in the newly added Chapter 6b of the PIT Act, addressed to a specific group of taxpayers interested in transferring their residence (tax residence) to Poland. The target group is taxpayers with a high level of assets, which allow them to be placed in the territory of Poland in socially useful projects – such as well-earned football players or actors.

The lump sum in this form would cover all revenue generated outside Poland (except for taxable income under CFC rules). Its amount, regardless of the level of income, would be 200,000 PLN A year.

The Ministry of Finance argues that the aim of these provisions is to create a competitive tax environment in Poland, prompting the above-mentioned group of taxpayers to relocate their tax residence in Poland – in particular as part of capital repatriation, but not only.

According to the proposed legislation, a taxable person who plans to opt for taxation under new rules should fulfil the following cumulative conditions:

• • transfer the place of residence for tax purposes (tax residence) to the territory of Poland. The transfer of the tax residence to Poland will result in the taxpayer being subject to taxation on the basis of unlimited tax obligation in Poland,
• • submit to the tax office a statement on the selection of flat-rate taxation according to the established formula,
• • during the period preceding the tax year in which the taxpayer transferred the tax residence to Poland, do not remain a Polish tax resident for at least 5 to 6 tax years,
• • to bear expenditure on growth, development of science and education, the protection of cultural heritage or the promotion of physical culture, as specified in a separate Regulation, in a total amount of at least 100,000 PLN A year.

Moreover, members of the closest family of a taxpayer using a lump sum, understood as a spouse and minors of children, will also be able to benefit from this solution – a lump sum from their foreign income would be 100,000 PLN A year.

Relief 4+ in PIT for Parents

The legislature also provided for an exemption from the PIT for parents with at least four children (regulation not included in the original draft amending act). According to the new Article 21(1)(153) Tax exempt PIT laws will:

• revenue from business relationship, employment relationship, overlay work, cooperative employment relationship,
• revenue from contract contracts concluded with the company; and

revenue from non-agricultural business. In this case, taxpayers will be able to benefit from the exemptions, who:

• tax revenue from this source according to general rules,
• they account for a line tax,
• tax revenue from qualified intellectual property rights,
• they account for a lump sum on recorded revenue.

It follows that preference does not automatically apply to all families with at least 4 children, but is restricted to the above category of income, which can be perceived by taxpayers as discriminatory action. For example, people will not benefit from the new relief in contracts on the work or management contracts.

The relief has also been reduced to the amount 85,528 PLN. On the other hand, the Ministry of Finance argues that general accounting should also include 30,000 PLN free amount, which gives 115,528 PLN. When the spouses are jointly settled in such a arrangement, the amount without the PIT is then to be paid 231,056 PLN.

Relief for working seniors

PIT-0 for seniors, it is intended to encourage them to remain on the labour market (this proposal was also not in the original July draft amending act). Based on New Added Article 21(1)(154) Tax exempt PIT laws will:

• revenue from business relationship, employment relationship, overlay work, cooperative employment relationship,
• revenue from contract contracts concluded with the company; and

revenue from non-agricultural business. In this case, taxpayers will be able to benefit from the exemptions, who:

• tax revenue from this source according to general rules,
• they account for a line tax,
• tax revenue from qualified intellectual property rights,
• they account for a lump sum on recorded revenue.

According to the Ministry of Finance: “Generally accounting senior citizens will have a free amount to use, which will be 30,000 PLN. So working seniors who don't get a pension will pay tax only after they've passed. 115,528 PLN earnings (30,000 PLN free + amount 85,528 PLN reductions)’. This is a similar solution, which was used in relief 4+ for my parents.

This proposal applies to revenue (within the above limit) received by the taxpayer after completion 60. year of age for women and 65. the year of life in the case of a man, provided that the taxpayer is subject to social insurance (within the meaning of the Social Security Act) and, despite the acquisition of entitlement, he does not receive a family pension or pension.

According to added to Article 21 PIT Act section 44, total tax-exempt revenue on the basis of section 1 points 148 and 152-154 This law may not exceed the amount in the tax year 85,528 PLN. Revenues referred to here are income tax-exempt income tax-free income tax-free income for young people, relief for return, family relief 4+ and relief for seniors (it follows that the limit under the above mentioned reductions does not merge).

At this point, it should be stated that the proposed solution may actually not be beneficial for pensioners. How he calculated the portal money.pl:

„As an example to calculate 65-a year old who has 3,000 PLN gross pension and 5,000 PLN gross monthly income on labour. It's statistically still ahead of him. 13 years of life.

If a man immediately passes the retirement age to the Social Security Service and will extrapolate, He'll be paid out by the others. 13 years of life in total 645,982 PLN. It's already included. 13. pensions.

If the senior stays on the labour market for another 5 years 70. (r.g.) and will not receive pension at that time, lose 13. pensions, but his pension will grow annually on average by 10% for higher capital and shorter retirement life. In this situation, ZUS will pay him a total 588,070 PLN.

And finally, if Polish Deal will enter into force and the pensioner will remain in the labour market by 5 years, instead of retiring, will pay from 2022 higher health contribution – 9%, which will not be deducted from the tax, but will benefit from zero PIT ok. 10,000 PLN A year. He'll be gone too. 13.

pensions for a period 5 years, but analogous to example No. 2 raise its pension capital. In total, ZUS will pay him 639,070 PLN. It's about ok. 6,000 PLN less than if he decided to immediately take a pension and work in parallel, as in example no. 1”[1].

A brochure discussing changes In the Polish Deal, you can download for free HERE

Author: Mateusz Krawczyński

Junior tax consultant At Russell Bedford Poland. Graduated from bachelor's degree in Logistics and Master's degree in Finance and Accounting. He is currently studying law at the Łazarski University. Previous professional experience in tax matters In one of Big Four companies. He specializes in tax on goods and services, in particular with regard to VAT settlements in local government units.