Polish Deal 2.0 – Tax changes from 1 July 2022

Tax changes introduced as of 1 January 2022 (the so-called Polish Deal) have caused major uncertainties when calculating salaries for employees. For this reason, the Ministry of Finance decided to introduce new legislation which aims at simplifying tax settlements. Tax changes are already in force and will apply to settlements as of the beginning of 2022

1. Decrease of the lowest PIT tax rate from 17% to 12%

One of the main changes of the amendment is the reduction of the lowest personal income tax rate from 17% to 12%. The rate applies to income of up to PLN 120 000. The implemented change applies to taxpayers taxed under the progressive tax scale (e.g. employees and board members).

2. Liquidation of the middle-class relief

Due to practical difficulties that the middle-class relief caused the Ministry of Finance decided to completely remove this preference. It is assumed that the lack of this relief is compensated by the introduction of a 12% PIT rate, as described above. Additionally, after the end of the tax year, the tax office will verify which rules of calculating remuneration would be more favourable for a taxpayer (Polish Deal 2.0 or Polish Deal 1.0). In the case where the rules of Polish Deal 1.0 are ultimately more favourable, a taxpayer will be granted with a refund from the tax office.

3. Removal of the obligation to calculate advances according to two regimes

Until 30 June 2022, as a result of the introduction of Polish Deal 1.0, the remitter (Polish entity) was obliged to calculate PIT advances in accordance (i) with the current rules of the PIT Act in 2022 and, additionally, (ii) the previous rules that applied until the end of 2021. As of 1 July 2022, there will be only one regime of calculating PIT advances which means less administrative burden for Polish companies.

4. Change of the form of taxation for entrepreneurs

Entrepreneurs subject to (i) flat 19% PIT rate or (ii) or lump sum taxation are able to change their form of taxation to tax scale (i.e. 12% up to PLN 120k, 32% above). It is possible to make the change after the end of the tax year, by selecting in the annual tax settlement that the taxpayer chooses taxation on the general rules for the entire 2022. Additionally, in the case of lump-sum taxpayers, they may declare to opt-out from the lump sum taxation by 22 August 20-22 – in this case, the taxpayer will be subject to progressive taxation as of 1 July 2022.

5. The possibility of partial deduction of health insurance contributions

The Polish Deal 2.0 introduced a possibility of partial deduction of the health contributions, depending on the chosen method of taxation:

• Flat rate (19%) – income deduction, up to PLN 8 700;
• Lump-sum – reduction of revenue, 50% of health insurance contributions paid.

This is a far less beneficial change as, until the end of 2021, health contributions were fully deductible from tax, and not from income/revenue. In addition, this change does not apply to taxpayers subject to a progressive tax scale – in their case the health insurance contributions are not deductible at all.

6. Single parent

Polish Deal 2.0 has introduced, the possibility for single parents to file joint settlement under similar rules to those in force in 2021.

Single parents will settle tax as they did before the Polish Deal reform, i.e. calculate tax at double the rate on half of the income. Taxpayers whose income exceeds PLN 120,000 a year will benefit the most from the introduced regulation.

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