The Polish government presented a draft package of tax and social changes, the so-called Polish Deal. General concepts of planned changes have been presented, however, we will wait for draft legal acts until the third quarter of 2021. The planned changes to the tax law presented so far relate primarily to the issue of taxation of personal income. As announced by the government, the aim of the planned changes is to implement the principle of fairness of tax burdens, according to which people with lower income should not bear a greater burden of tax than people earning more. The proposed changes should have a positive impact on the income of people whose gross income under the employment contract does not exceed PLN 7,000 gross. Entrepreneurs running a sole proprietorship will be required to pay a health contribution proportional to their income, and not the flat rate as before. Additionally, the expenses incurred to pay the health insurance contribution will not be tax-deductible.
The most important changes are presented below.
The government has announced that the tax-free allowance will be raised to PLN 30,000. It has not been clarified whether the degressive nature of the tax-free amount will be maintained.
Raising the tax threshold
Another planned change is to raise the second tax threshold from PLN 85,528 to PLN 120,000 annually. The tax rate increases from 17% to 32% on revenues excess of this amount.
Unification of the health contribution. Impossibility to deduct the health insurance contribution from your income
Another change is to unify the amount of the health insurance contribution and the method of its calculation. In this way, both employees and entrepreneurs will pay health insurance contributions at a uniform rate of 9% from the tax base. According to the announcement, the possibility of deducting the paid contribution from the tax base will be excluded. This solution will cause a significant tax and contribution burden for entrepreneurs.
It is also planned to cover civil law contracts with full health insurance contributions.
If the planned changes reduce the salaries of employees working under an employment contract with an annual income in the range of PLN 70,000-130,000, the so-called “correction factor” will be applied. It is supposed to be a tax relief, which will ensure the neutrality of tax reforms for employees with such income.
“PIT 0” for working seniors and a pension up to PLN 2,500 without PIT
The government also plans to introduce zero PIT for working seniors. People who reach the retirement age (60 for women and 65 for men), but will not retire and will continue to work, will not pay PIT (up to the amount of the second tax threshold). Due to the introduction of a tax-free amount of PLN 30,000, seniors receiving pensions up to PLN 2,500 per month will not pay income tax at all.
Tax investment package
R&D relief, IP Box – As announced the R&D relief and the IP Box relief will operate simultaneously.
IPO relief – Entering the public market allows enterprises to develop quickly. The tax relief is intended to reduce the costs of entering the stock exchange.
Relief for automation and robotization of production – in order to help companies develop production a tax relief for robotization is to be introduced.
Support for the employment of innovative employees – the government has announced tax deductions from the costs of employed scientists. Thanks to the relief for innovative employees, the employment of employees engaged in specialist activities is to be more profitable for companies.
Fixed flat rate for foreign income (incentive for repatriates)
A solution for non-residents regarding the taxation of foreign income was also presented. If a non-resident decides to transfer his tax residence to Poland, one will pay a fixed flat rate on foreign income.
Changes in Estonian CIT
The Estonian model of income taxation consists of shifting the moment of taxing the company’s profits until their payment. Estonian CIT entered into force in 2021, but not many companies took advantage of this form of taxation. According to the announcements, changes are planned in the way the Estonian CIT operates so that more companies can use this form of settlement.
The purpose of introducing interpretation 590 is to ensure tax certainty in the first years of investment. Thanks to interpretation 590, the investor, will receive information from the National Tax Administration about the tax consequences of the planned activity or operation. The information received will be binding to the tax administration.
The introduction of VAT groups was also announced. Settlements within capital groups will not be subject to VAT. This will result in savings for companies, lower transaction handling costs, and simplify the analytical activity of the National Tax Administration.
Possibility of VAT taxation for financial institutions
Another change is the possibility of VAT taxation of financial institutions. This solution can be an incentive for investments in Poland by the financial sector.
In the coming weeks, we will probably see more details about the planned changes. We will keep you informed about them in future publications.
Head of Tax, Board Member
Tax Manager, Tax Adviser, Attorney-at-law