Polish Deal vs changes in the tax system

by Bartosz Fuchs

24 May 2021 ​

The so-called Polish New Deal was presented on 15 May 2021. According to the announcements, it is aimed at supporting and eliminating the impact of the pandemic. The programme introduces many changes including the so-called “tax reset”.

Changes to personal income tax – the upsides

Personal allowance increased to 30,000 zloty

One of the most quoted assumptions of the Polish New Deal is the increase in the personal allowance to 30,000 zloty p.a. (approx. 2,500 zloty per month). There has long been a public debate calling for increasing this amount. This is because only a narrow group of taxpayers could claim the current personal allowance of 8,000 zloty.
 
This advantageous solution will broaden the group of beneficiaries of the personal allowance and will index it to respond to the current economic realities. It should be emphasised that the personal allowance is only available to taxpayers who settle their PIT on general principles (i.e. according to the tax scale).
 
The presented information does not include important aspects, such as what would be the amount of personal exemption for those who earn over 30,000 zloty per year.
 

Raising the tax scale threshold to 120,000 zloty

Another positive aspect intended to improve the situation of taxpayers is the first-in-12-years increase in the tax scale threshold. At present, 17% PIT is paid in the case of income of up to 85,528 zloty. After that threshold is exceeded, the tax is 32%.
 
After the introduction of the Polish New Deal, the 32% PIT will be paid on income exceeding 120,000 zloty.
 

Middle class relief

It has also been announced that there will be a relief implemented for people whose employment income ranges from 70,000 to 120,000 zloty. This is the only piece of information that was revealed about this relief.
 

PIT relief for returning migrants

According to the announcements, Polish migrants returning to Poland will be able to deduct 50,000 zloty from the taxable base in their 2022 annual tax return. An analogous solution is to be possible in the 2023 tax return.

Flat rate on foreign income

Taxpayers who decide to change their tax residence from the foreign country to Poland will be able to use the flat-rate taxation of income earned abroad. However, no further information about the said flat-rate taxation has been announced (e.g. regarding the tax rate or the specific source of income to be taxed).
 

The “Return of Capital” programme

The programme aims to incentivise Polish tax residents holding hidden assets or income abroad not disclosed in their tax returns. According to the announcements, disclosing a foreign source of income (assets or income) will not involve any repercussions on the part of the tax authorities such as the institution of tax evasion proceedings.

No PIT for working old-age retirees and no PIT on pensions of up to 2,500 zloty per month
As part of the presented pillar “Golden autumn of a senior's life”, the following measures have been announced:

• No PIT on old-age pensions of up to 2,500 zloty per month.
• No PIT for old-age retirees who decided to continue to work (PIT-0).

Changes to health insurance contributions

 
The upsides of the announced changes in the area of personal income tax are overshadowed by changes in the area of social insurance contributions.

Elimination of the flat-rate health insurance contribution for sole proprietors

Sole proprietors may currently pay the health insurance contribution in the flat amount that was 381.81 zloty in 2021. The Polish New Deal introduces a change where the health insurance contribution for sole proprietors will be calculated similarly as that for employees working based on employment contracts.

After the change is introduced, sole proprietors will calculate the health insurance contribution proportionally to earned income at the fixed rate of 9%.

Elimination of tax deductibility of health insurance contributions

While the change in the manner of calculating the health insurance contribution affected only sole proprietorships, the elimination of the possibility of deducting it from tax will affect all taxpayers. This change involves most severe consequences that will lead to a significant increase in public law duties.

However, this change will most severely hit enterprises organised as sole proprietorships, who will not only have to pay a higher health insurance contribution (as its amount will depend on the earned income) but also will not be able to deduct it. Thus, for enterprises settling PIT based on the flat rate scheme, the PIT rate may increase from 19% to 28%.

Full social insurance contributions on contracts of mandate

Effective 1 January 2022, contracts of mandate will be subject to the obligation to pay full social insurance contributions. The Polish New Deal's assumptions regarding civil law contracts do not end on changing the rules for paying social insurance contributions but include their entire elimination and the introduction of a “uniform contract of work”.

It should be noted that the Polish New Deal's assumptions do not include the introduction of the obligation to pay social insurance contributions on contracts for a specific task [umowa o dzieło].

Other changes

 
Among many other concepts, the Polish New Deal introduces changes that relate to other areas of tax law, too.

In the case of CIT, this includes, for example:

• Extension of the scope of the IP BOX relief and the R+D relief.
• Increasing the group of companies that can use the Estonian CIT regime.
• Introduction of automation and robotisation relief.
• Reduction of IPO costs (IPO relief).
• Simplifications for holding companies regarding transfer prices.

In the case of VAT, this includes, for example:

• Non-taxability of transactions within the so-called VAT-consolidated groups (the solution is the same as in CIT on intra-group transactions).
• Option for financial institutions to charge VAT on financial transactions.
   

The Rödl & Partner experts are keeping track of the progress in the programme implementation and will report any news. If you have any questions, please do not hesitate to contact us.