New rules on tax-deductibility of 50% of income-related expenses

The Personal Income Tax Act ("the PIT Act") has been amended with effect from 1 January 2018 by virtue of the Act of 27 October 2017 amending the Personal Income Tax Act, the Corporate Income Tax Act and the Act on Flat Income Tax on Certain Revenues Earned by Natural Persons.

The amending act has introduced a new, higher income cap eligible for the deduction of 50% of expenses. It is now PLN 85,528 per year.

Starting from 2018, only natural persons engaged in activities specified in the PIT Act may enjoy this tax relief.

 
Those activities include:

• artistic activity in the area of architecture, interior architecture, landscape architecture, construction engineering, city planning, literature, arts, industrial design, music, photography, audio and audio-visual work, computer programmes, computer games, theatre, costume design, stage design, directing, choreography, artistic violin-making, folk art and journalism;
• artistic activity in the field of acting, stage, dance and circus as well as in the field of conducting, vocal and instrumental studies;
• audio and audio-visual production;
• journalistic activity;
• museology activities in the field of exhibition, science, popularising, education and publishing;
• conservation activities;
• derivative right referred to in Article 2(2) of the Copyright and Neighbouring Rights Act of 4 February 1994 to adapt someone else's work by translating it;
• research and development, scientific-educational, scientific and teaching activities carried out at the university.

Implications of the new rules on tax-deductibility of 50% of income-related expenses

To claim tax relief for 50% of the money you spent to earn your income, you must create a work in the meaning of copyright law. You must also meet the fee criterion, i.e. the fee for the transfer of copyrights should be set in an employment contract or in another document, and may not be agreed on an on-going basis taking into account the time spent on the work creation.

You may not enjoy the tax relief if the statute does not mention your activity among those eligible for the relief . According to the amendment, individuals pursuing an activity not eligible for the relief will have to pay higher taxes on their income.

To reduce the tax risk in this area, we advise checking every time whether a given activity entitles you or your workers to claim the 50% relief according to the act starting from 1 January 2018. You should also analyse the scope of responsibilities covered by the contract.

If you are interested in more details about this issue, please let us know. We will be glad to assist you in this regard and provide you with advice on CIT, PIT, VAT issues. Our tax advisers in Rödl & Partner offices in Cracow, Gdansk, Gliwice, Poznan, Warsaw and Wroclaw will also answer any other of your tax-related questions. Feel free to contact us.