The Polish Deal that entered into force on 1 January 2022 (with certain exceptions) involves a number of major changes both for companies and natural persons. The changes in 26 legal acts have been introduced in one big package. They have a great impact on crucial things from the taxpayer’s perspective, such as health insurance premiums, personal allowances, new tax thresholds and a range of other regulations. In the article below, we are going to discuss the most important ones the entrepreneurs surely cannot afford to overlook. We have already addressed these changes in detail on our blog, and we encourage you to read it.
New tax scale and higher personal allowance
The new tax scale will consist of 2 thresholds:
- 17% (for income up to PLN 120,000),
- 32% (over PLN 120,000).
According to the amendment, the personal allowance shall be PLN 30,000 per year; so far it was a maximum of PLN 8,000. If you pay your taxes according to general rules, i.e. the tax scale, you are entitled to a personal allowance. If you have chosen a flat-rate tax, lump sum on registered income or tax card, you are not entitled to any personal allowance.
Health insurance premium revolution
These changes affect all the taxpayer groups and have a great impact on the level of tax and tax-related burdens.
Premium for those who have their income taxed according to a tax scale or pay flat-rate tax
In the case of the former: the premium is to depend on the amount of income, and not a fixed base, as it used to be.
If you pay a flat-rate tax, your premium is going to amount to 4.9% of your income, the reservation being that it cannot be lower than 9% of a minimum wage.
The health insurance premium can no longer be deducted from your tax (until the end of 2021, 7.5% of the basis for its calculation could be deducted from the input tax). What it means is that you will have to pay more in tax.
Health insurance premium for those who have their income taxed according to a lump sum on registered income
For this group of taxpayers, the basis for calculating the health insurance premium shall be the average salary; however, the final amount shall be calculated on the basis of their annual income.
The following tax thresholds have been defined:
- 60% of average salary for entities with an annual income up to PLN 60,000,
- 100% of average salary for entities with an annual income below PLN 300,000,
- 180% of average salary for an annual income over PLN 300,000.
Health insurance premium for members of management boards of companies and foundations and proxies
Individuals who are appointed members of management boards by virtue of an appointment letter and receive a salary for this, will have to pay a health insurance premium in the amount of 9% of their salary.
Middle class allowance: who is entitled?
Possible beneficiaries of this allowance include taxpayers who have their income taxed according to a tax scale, i.e. those employed under an employment contract or those working within a cooperative employment relationship, as well as certain employers. The taxpayer will have the option of deducting a certain amount from their income, provided that their annual income is between PLN 68,412 and PLN 133,692. If you exceed the upper threshold, even by a small amount, you will lose this allowance.
This allowance is also not available to persons employed under a contract of mandate, contract for a specific work or retired.
This relief is for people who have lived and worked abroad for at least 3 years. If they return to Poland and change their tax residency to Polish, they can pay lower income tax for 4 years after returning to Poland. Clearly, they have to meet the conditions listed in the act. This relief has an annual threshold, being PLN 85,528 annually for the total income from the following sources: employment relationship, contract work, non-agricultural business activity, labour-based relationship, copyrights and related rights.
This tax is going to apply to many entities: companies, capital groups and branches of foreign entrepreneurs that meet at least one of the following conditions in the tax year:
- loss of a source of income other than capital gains;
- not less than 1% share of income from sources other than capital gains.
This means that this tax will apply not only to large entities (as earlier announced by the Ministry of Finance), but also smaller companies, as the above-mentioned factors are the only eligibility criteria for minimum CIT.
The rate of the new tax is 10%, whereas the tax base is the total of:
- 4% of the value of the income (other than capital gains)
- 10% of excess payments to related entities within a capital group. These include debt financing costs or costs of purchasing intangible assets from related entities.
Art. 15e of CIT revoked: consequences for taxpayers
Under the aforementioned article, taxpayers were obliged to exclude any costs of intangible services provided by related entities from their tax-deductible costs. The Polish Deal repealed this provision, but included this regulation in provisions defining the minimum income tax, according to which the very same costs of intangible services provided by related entities shall be included in the tax base calculation. This new regulation can be found in Article 24a of the CIT Act.
The repealed Article 15e of the CIT Act will come as a disadvantage to many taxpayers, including those who have obtained a prior APA pricing agreement under which they do not have to apply Article 15e.
The introduced changes include the option of creating VAT groups. Thanks to this solution, entities being members of a group can settle VAT jointly as a single taxpayer for VAT purposes. Such a group can be formed by entities that are related financially, economically and organisationally at the same time. Thanks to this, goods and services provided between entities within a group shall not be taxed, and there is no need to analyse the right to deduct VAT between entities within a group and the split payment mechanism shall not be applied. The number of documents required should also be smaller.
New product relief
This is a new relief that allows you to deduct the costs of trial production of a new product or the costs of launching a new product from the tax base. However, it should be noted that this relief applies only to products created as a result of research and development works. The legislator has defined both the concept of “trial production” and “launching new product” and prepared catalogues of “costs of trial production” and “costs of launching a new product”. These costs should be reported in the annual tax return for the tax year in which they were incurred, with the option of deducting them in the following two years, but the amount of the deduction cannot exceed 30% of the costs incurred and constitute more than 10% of the income generated from sources other than capital gains.
This is a brand new relief. It allows the entrepreneur to deduct 50% of robotisation costs from the tax base. These costs may include:
- costs of purchasing brand new industrial robots, machines and related equipment;
- costs of acquisition of intangible assets necessary for the proper launch and use of robots;
- costs of training services.
IMPORTANT: The robotisation relief has been introduced for a limited period of time, namely you can apply it only to expenditures incurred in the years 2022 – 2026. This preference was placed in “episodic, transitional and final” provisions of the CIT Act.
Relief for innovative employees
Entrepreneurs who cannot apply any R&D relief because they fail to meet the relevant preconditions can now apply a relief for innovative employees, i.e. deduct the amount of this relief from tax advances paid on salaries of employees whose working time dedicated to R&D tasks is at least 50% of their total working time. This regulation applies to persons employed under a contract of employment, contract of mandate, contract for a specific work, as well as copyrights.
Controlled purchase: a new type of inspection to fight the black market
Employees of the National Revenue Administration will have the right to take on the role of regular customers in order to uncover any irregularities in recording the sales by checking if the seller issues a fiscal receipt to the buyer after selling any goods or services. What remains a great unknown is when such controlled purchases can be made and how they select the entities to be inspected.
Provisional seizure of movable property
This is another new tool aimed at boosting the effectiveness of administrative enforcement. In the course of customs and fiscal inspection, the officer will have the right to temporarily (for up to 96 hours) seize movable property owned by the taxpayer, such as cars, computers, furniture, jewellery, etc. This solution can be used in the enforcement of monetary claims covered by enforcement titles exceeding PLN 10,000 in total, with the reservation that movable property, the value of which exceeds the claim to a significant degree cannot be subject to such seizure.
This regulation raises doubts as to the considerable freedom of customs and fiscal authorities in using provisional seizure as well as a limited possibility of defending against the seizure itself: no appeal against a provisional seizure has been provided for. The seizure takes place by issuing a protocol (and not a decision), which means that only once the seizure has been approved by the enforcement authority does the debtor have the right to file a complaint. While the provisional seizure is in force, the NRA again verifies the existence and amount of the debt, and the debtor has no possibility to appeal against the seizure.
Central Register of Beneficial Owners as an updated obligation of entrepreneurs
Although the Polish Deal has dominated the changes in the law for 2022, we should also mention an important update not relevant to this reform.
Pursuant with the Act of 30 March 2021 Amending the Act on Countering Money Laundering and Terrorist Financing and Certain Other Acts, a number of changes has been introduced to the Act of 1 March 2018 on Countering Money Laundering and Terrorist Financing. One of the major ones is that the obligation to register in the Central Register of Beneficial Owners (hereinafter: CRBO) has been extended to include the following entities: trusts, professional partnerships, European economic interest groupings, European companies, cooperatives, European cooperatives, associations subject to registration in the National Court Register and foundations. These entities are required to report information about their beneficial owners to the CRBO by 31 January 2022. Another new requirement is that every citizenship of the beneficial owner must be reported, as well. Companies that are already included in the CRBO registry are required to report any additional citizenship of their beneficial owner by 30 April 2022. In contrast, entities that register for the first time are obliged to report any and all citizenships of their beneficial owner right away.
As it used to be, the person reporting or updating the information about beneficial owners shall be the person representing the entity in accordance with the model of representation revealed in the entrepreneurs register of the National Court Register. However, starting from 31 October 2021, only persons who sign the registration request on behalf of the entity shall be reported to the CRBO instead of all persons authorised to represent the entity, as it used to be. The liability clause should also be discussed here. The person making a registration/update request shall be responsible and liable for any damage caused either by submitting untrue data to the register or a failure to submit or update any data required by the register within a statutory deadline. In this amendment, the legislator has also specified that the beneficial owner shall be obliged to provide any information and documents necessary to report/update any beneficial owner details to the company or trustee or a person holding an equivalent position in a trust under pain of a fine of up to PLN 50,000.
Any failure to meet the statutory deadline of 7 working days to make the first registration or update request with the CRBO shall result in a fine in the amount of up to PLN 1 million. Nothing has changed here.
Instead of a summary
There are many controversial and imperfect changes in the Polish Deal. That is why we anticipate having to update this article definitely more than once during the next 11 months.