Key tax changes related to the bill Polish Deal

Day 26 July 2021 The Ministry of Finance has published a pending 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.

The project assumes a number of tax changes, including particularly significant ones, which relate to the amount of the taxpayer's contribution to health insurance, as well as the elimination of the possibility of deducting it from the PIT [1].

MF estimates that by raising the tax-free amount, the lowest earners and 2/3 pensioners will stop paying taxes

Increase in taxes due to the change of the health insurance contribution base

Provisions will be abolished which, in the current state of the law, form the basis for deducting the income tax contribution to health insurance 7.75% the foundations of its dimension [2]. As a result, not only employees but also entrepreneurs will pay it at the same rate 9% from the tax base, i.e. without deduction [3]. This means, for example, that if to a linear tax of 19% add 9% health premium, the entrepreneur will pay effectively until 28% tax [4].

In this context, it must be stated that according to Article 13(5) point (d) The law amending the basis for the contribution to the health insurance of economic persons who apply taxation in the form of a lump sum on recorded income will be as follows: 1/3 the rate of that lump sum [5]. For example: taxed entrepreneur 15% At the rate of the lump sum, it will pay a health contribution of 5% revenue, i.e. its actual burden will increase to 20% [6].

Based on Article 13(1) a bill amending the 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 which cannot be deducted from tax [7],[8].

Freezing of the tax card

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 [9].

In addition, in accordance with the amending Act, under Article 81 Public-funded health care benefits legislation is planned to be added section 2u, in which it is stated that the basis for the assessment of the health contribution for companies accounting on a tax card basis will be the amount of the average monthly remuneration in the enterprise sector In the fourth quarter of the previous year, including payments from the profit announced by the President of the Central Statistical Office in “Polish Monitor” [10].

In this case, too, it will no longer be possible to deduct health contributions from the amount of tax [11].

Business income as an additional source of funding to fight COVID-19

MF argues that such a far-reaching increase in the actual tax due is due to the need to obtain additional funding for health care in order to counter the effects of the pandemic COVID-19 [12]. Delete the above changes to three the intended benefit:

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 a new reality in which wages in Poland have doubled over the years’ [13];

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) [14];

a relief for workers (or otherwise: ‘mid-class relief’). It is intended to apply to taxable persons employed on the basis of a business relationship, employment relationship, overtime or cooperative employment relationship. Thus, neither entrepreneurs nor workers providing employment under a civil contract will benefit from it.

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 not 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. The amount of the staff allowance 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) [15].

Taxation of rental, sub-rental and lease contracts

The project also introduces the same rules for the 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%) [16],[17].

Exemption of depreciation off buildings and dwellings

In addition, there will be an exclusion from the tax costs of depreciation off buildings and dwellings. The situation will therefore be similar to land and land use rights which are not amortised either. 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 activities will no longer be subject to depreciation (both in PIT and CIT) [18].

Amendment of the cash payment limit

Changes will also be made in the cash payment limit.

Under Article 19(2) The law of entrepreneurs states that payments related to the economic activity are made or accepted through the payment account of the entrepreneur, whenever the single value of the transaction, regardless of the number of payments resulting therefrom, exceeds 15,000 PLN.

Under Article 18(1) The amending law reduced this limit to 8,000 PLN. Therefore, if the taxpayer pays the amount above 8,000 PLN in cash, then it will not be possible to classify such expenditure as revenue costs [19].

In conclusion, the MF estimates that by raising the tax-free amount, the lowest earners and 2/3 The pensioners will stop paying taxes. The reform will benefit more than 18,000,000 taxpayers, including over 90% pensioners, 68% persons employed on a contract of employment and 40% persons engaged in economic activity.

The reform is intended to be neutral for employees on a salary contract 6-11,000 PLN A month. Moreover, the ministry indicates that for 24,000,000 Poles, that is 90% taxpayers, the aforementioned tax changes will be beneficial or neutral.

When reviewing these changes, it is difficult not to get the impression that they will benefit mainly pensioners and less earners. For mid-level taxpayers employed under a labour contract, the changes should generally be neutral. They will mainly lose small entrepreneurs, on whose shoulders the project will be financed [20],[21].