This year the event will be bigger than ever with more business participants like investors, developers, bankers, dealmakers. It will be hosted at two locations: Palais Niederösterreich and Vienna Am Belvedere. The main topics are: investment markets, financing, retail, logistics, offices, living assets, hotels, etc.

We will participate in meetings with key developers and investors about crucial topics in the CEE region, such as regional expansion; investment strategies; or environmental, social, and corporate governance.

We hope to see you in Vienna!

Milosz_Saramak_320x320

Miłosz Saramak
Head of Marketing and Business Development
m.saramak@krgroup.pl

Laszlo_Hosszu_480x480

László Hosszú
Hungary Country Manager
l.hosszu@krgroup.hu

The reduction of VAT rates applies to the following categories of goods:

  • basic food and beverages currently subject to the 5% VAT rate - they will be taxed at 0% VAT;
  • goods used to drive internal combustion engines (diesel oil, biocomponents constituting self-contained fuels, motor gasoline, natural gas (wet), liquefied LPG) - currently subject to the 23% VAT rate - will be taxed at the 8% VAT rate;
  • fertilizers, plant protection chemicals, horticultural soil and other means of supporting agricultural production - currently subject to the 8% VAT rate - will be taxed at 0% VAT;
  • natural gas (CN 2711 11 00 or 2711 21 00) - will be taxed at 0% VAT;
  • electricity (CN 2716 00 00) - will be subject to VAT 5%;
  • heat energy - will be subject to VAT 5%.

The amendment will enter into force on February 1, 2022.

Should you be interested in obtaining further information, or would like to discuss the impact of the new VAT rates, please contact us.

You can read the draft amendment here.

Deadline for submission of the report: 31.01.2022.

The report includes the following details:

  • the value of cash benefits received in the previous calendar year within:
    • 30 days;
    • between 31 and 60 days;
    • between 61 and 120 days;
    • over 120 days

- from the issue date of the invoice or bill confirming the delivery of goods or service provision;

  • ­the value of cash benefits provided in the previous calendar year within:
    • 30 days;
    • between 31 and 60 days;
    • between 61 and 120 days;
    • over 120 days

- from the issue date of invoice or bill confirming the delivery of goods or service provision;

  • the value of cash benefits not received in the preceding calendar year within the period specified in the contract and the percentage of those benefits of the total value of cash benefits due to this contractor in that year;
  • the value of cash benefits not provided in the previous calendar year within the period specified in the contract, and the percentage of those benefits in the total value of cash benefits to be provided by this contractor in that year.

The report shall be sent electronically:

  • signed by all members of the management board authorized for representation;
  • by proxy.

Board members are responsible for submitting the report. Not submitting the report will be treated as an offence and will be a subject to a fine amounted up to PLN 5,000.

If the report is submitted on time by a person/persons entitled to represent the company, all members of the management board or another managing body shall be exempt from liability, regardless of whether they participated in submitting the report.

The submitted data is published on the BIP (Public Information Bulletin) website. Should any questions arise, we remain available. 

Article 3 of this Act amends Article 13a of the Act of 08.03.2013 on Counteracting Excessive Delays in Commercial Transactions (unified text Journal of Laws of 2021, item 424). These amendments replace in paragraphs 1, 3 and 4 the references to Article 27b(2) of the Corporate Income Tax Act with references to Article 27b(2)(1) and (2) of that Act.

The Amendment Act came into force on the day after the date of promulgation, i.e. on 16.12.2021.

As a result of the above change, entities referred to in Art. 27b section 2 point 3 of the Corporate Income Tax Act, i.e. real estate companies, including real estate companies belonging to a tax capital group, are not obliged to submit, by 31 January of each year, a report on payment terms used in commercial transactions in the preceding calendar year.

Thus, a real estate company may be obliged to file the aforementioned report only under the rules provided for other entities, i.e. if its revenues earned in the tax year exceed the equivalent of EUR 50 million.

We would like to inform you that we are also aware of the information that the Ministry of Development and Technology is working on additional amendments to the Act on Prevention of Excessive Delays in Commercial Transactions in order to move the deadline for filing the report on payment dates in commercial transactions from January 31st to April 30th for all entities.

As of today, however, we have no information on what stage the work is at or when it will be completed.

Previously, the tax regulations imposed an obligation on taxpayers to document a transaction with an entity based in a tax haven, when the value exceeded PLN 100,000 in the tax year. For 2021, taxpayers will also be obliged to prepare transfer pricing documentation in a case where:

  1. The beneficial owner has its place of residence, registered office or management in a territory or country applying harmful tax competition, and
  2. The value of this transaction for the tax year, or in the case of partnerships (not legal persons) for the financial year, exceeds PLN 500,000.

Under the amended regulations, it is presumed that the beneficial owner has a place of residence, registered office or management in a territory or country applying harmful tax competition if, in the tax year or financial year, the other party to the transaction makes settlements with an entity with its registered office or management in a territory or country applying harmful tax competition.

The jurisdictions classified as tax havens are indicated in the Regulation of the Minister of Finance of 28 March 2019 on Countries and Territories Applying Harmful Tax Competition with Respect to Corporate Income Tax.

Due diligence

If the presumption is not rebutted, taxpayers will be obliged to prepare local transfer pricing documentation also when entering into transactions with unrelated parties. Thus, due diligence is important when reviewing transfer pricing obligations in this regard.

Pursuant to the tax explanatory notes (Transfer pricing tax explanations No. 4—Presumption and due diligence referred to in CIT Act Art. 11o(1b) and PIT Act Art. 23za(1b)), to exercise due diligence in verifying transactions with unrelated parties it will be necessary to obtain a statement from the counterparty indicating that it does not make any settlements in the tax year with an entity located in a tax haven.

To exercise due diligence with respect to related parties, it will be necessary both to obtain an appropriate declaration and to verify the information received from the related party. Sources of knowledge about a related entity may include for example:

  1. Transfer pricing documentation
  2. Country-by-country (CbC) information on corporate groups
  3. Financial statements and auditor’s opinion
  4. Ownership structure
  5. Opinion of a member of a profession of public trust.

We recommend reading more about the tax explanations of the Ministry of Finance at the following link.

Risk minimization measures

First and foremost, the new obligations coming into force will require taxpayers to exercise due diligence. Measures that will reduce the risk of having to prepare transfer-pricing documentation include:

  1. Collecting statements from counterparties
  2. Developing a procedure for verification of counterparties in terms of settlements with entities from tax havens
  3. Including clauses in contracts enabling the taxpayer to obtain information necessary for verification of the counterparty
  4. Adding relevant provisions to the transfer pricing policy or other internal documents relating to the verification procedure, and further proceedings in a situation where a counterparty carries out transactions with an entity from a tax haven.

The validity of transfer pricing analyses prepared by taxpayers for 2017 expired in 2020. Some companies, due to possible changes in the market in which they operate, should check whether there was a need to update their analyses prepared later than 2017.

By the end of December this year, taxpayers who have a tax year coinciding with the calendar year and who in 2020 completed transactions with related entities with a value exceeding the statutory limits of:

  • PLN 10,000,000 in the case of a commodity transaction or financial transaction
  • PLN 2,000,000 in the case of a service transaction or other transaction
  • PLN 100,000 in the case of transactions with entities from tax havens

are required to prepare local transfer pricing documentation for these transactions and a statement on preparation of local transfer pricing documentation and application of market prices, and to complete the TP-R form.

Reporting obligations

The reporting obligations include:

  • Statement on preparation of local transfer pricing documentation (submitted to the relevant tax office)
  • TP-R form (submitted to the head of the National Revenue Administration)
  • Information about the group of entities (CbC-R form)
  • Notification regarding the obligation to provide information on the group of entities (CbC-P form).
Reporting obligationDeadline for submissionDeadline for submission—changes related to COVID-19Obligated entity
TP statementBy the end of the 9th month after the end of the financial yearBy 30 September 2021 if the time limit expires between 1 February 2021 and 30 June 2021 An extension by 3 months if the time limit expires between 1 July 2021 and 31 December 2021Related entities required to prepare local transfer pricing documentation
TP-R formBy the end of the 9th month after the end of the financial yearRelated entities required to prepare local transfer pricing documentation and related entities with their residence, registered office or management in Poland, to which the obligation to prepare local transfer pricing documentation does not apply
CbC-R formBy the end of the 12th month after the end of the financial yearNo changesParent entities that are part of the group of entities and have their registered office or management in Poland (in cases specified in the Act on Exchange of Tax Information with Other Countries, also entities that are not parent entities)
CbC-P formWithin 3 months from the end of the financial year of the group of entitiesNo changesEach entity within a group of entities, if its results are consolidated in the group’s financial statement and the group’s consolidated annual revenue exceeds EUR 750,000,000

TP statement

Entities preparing transfer pricing documentation must also submit a statement to the relevant tax office on preparation of the TP documentation and the application of market prices in mutual settlements.

Who takes responsibility?

Due to the COVID-19 pandemic, rules for signing TP statements are simplified. Under normal circumstances, the statement would have to be signed by the management board of the company, but during the pandemic the statement may be signed by any persons authorized to represent the unit. Please note that it is not allowed to submit a statement by an attorney. A model statement can be found on the website of the Ministry of Finance.

TP-R form

All transactions subject to the documentation obligation in 2020 should be reported in the TP-R form. Importantly, domestic transactions exempt from the obligation to prepare documentation pursuant to Art. 11n of the CIT Act are also subject to reporting. Please note that the TP-R form for 2020 is different than the TP-R form for 2019, so it is not enough to update the previous document. The form may only be submitted in electronic form via the e-Deklaracje system.

Penalties for failure to fulfil obligations

In the case of failure to submit a TP statement on preparation of local transfer pricing documentation and the TP-R form, submitting them after the deadline, or providing false statements, taxpayers may face financial penalties under the Fiscal Penal Code, which may amount to up to PLN 27,000,000.

This is the last moment to fulfil the transfer pricing obligations for 2020, so in case of any doubts, please contact us!

Due diligence

Withholding tax is a tax which the remitter is obliged to collect when withdrawing recievables on certain grounds, e.g. on interest, for advisory services, legal services, management and control, or dividends to a non-resident.

The remitter may apply a reduced WHT rate or not collect the tax at all, if allowed by a tax treaty or by specific regulations. Then the remitter is required to hold a certificate of tax residence and exercise due diligence.

So far, the due diligence assessment has taken into account the nature and scale of the activities carried out by the remitter. According to the Polish Deal provisions, due diligence will also be assessed through the prism of the relationship between the remitter and the taxpayer. This means that in the case of payments of receivables between related entities, a higher standard of due diligence will be expected, as entities within capital groups have greater access to specific information regarding other entities in the group.

Changing the definition of “beneficial owner

For WHT due diligence, it is also important to determine the beneficial owner of receivables. According to the new provisions, the definition of “beneficial owner” will change. Thus an entity that is an intermediary obliged to transfer all or part of the receivables to another entity, would not be regarded as the beneficial owner. The current version is narrower, as it indicates that the obligation to transfer all or part of the receivables to another entity should be legal or factual.

Pay-and-refund mechanism

If the total amount of receivables paid on the foregoing basis exceeds PLN 2 million in the tax year for the same taxpayer, the remitter will be obliged to collect WHT according to the tax rate resulting from the CIT Act on the surplus over PLN 2 million.

Under the bill, the pay-and-refund mechanism will not be applied to all income earned in Poland by non-residents subject to withholding tax. The catalogue iss narrowed to revenue generated:

  1. From interest, copyright or related rights, rights to inventive designs, trademarks or ornamental designs, including from the sale of those rights, from compensation for disclosure of a secret of a recipe or production process, for use of or the right to use an industrial device, including means of transport, a commercial device or a scientific device, or for information associated with industrial, commercial or scientific experience (know-how)
  2. From dividends, and other income from participation in the profit of legal persons with their registered office or management in Poland.

The pay-and-refund mechanism will apply to the aforementioned revenue only when such receivables are paid to a related entity.

Moerover, it should be noted under the proposed new Art. 26(2ec) of the CIT Act, the pay-and-refund mechanism will also be applied to receivables that, without justified economic reasons, were not classified as receivables covered by this mechanism.

Opinion on the application of exemption = Opinion on the application of preferences

Opinions on the application of an exemption are to be replaced by opinions on the application of preferences, due to the extended scope of these opinions. Both the remitter and the taxpayer would be able to apply for an opinion.

Even if the receivables were covered by the pay-and-refund mechanism, based on an opinion on the application of preferences it would be possible to:

• refrain from collecting tax in accordance with a tax treaty
• apply the rate resulting from a tax treaty, or
• apply exemptions under the CIT Act (Art. 21 (3) or 22(4)).

Remitter’s declaration for use of relief at source

Under the changes, the pay-and-refund mechanism would not apply if the remitter submits a declaration that:

  1. The remitter holds documents required by tax law to apply the tax rate or the tax exemption or non-collection resulting from specific regulations or tax treaties,
  2. After the verification referred to in point 1, the remitter does not have grounds for believing that there are circumstances excluding the possibility of applying the tax rate or for the exemption or non-collection of the tax resulting from specific regulations or tax treaties.

Such declaration is to be made by the head of the entity within the meaning of the Accounting Act, stating the function performed by the declarant. According to the provisions, if an entity is managed by a multi-person body, the declaration is to be made by one or more authorized representatives. An attorney will not be entitled to submit the declaration.

Due to introduction of many crucial changes, we have compiled for you the most important information affecting individuals conducting business activity, so that you may consider the essential tax changes introduced under the Polish Deal.

The key tax changes introduced under the Polish Deal starting 1 January 2022 include:

1. Increase of amount exempt from personal income tax for business owners operating as sole traders and taxed under the general tax scale, to PLN 30,000 per year.

ChangeCurrent valueValue from 2022
Increase of tax-free amountPLN 0–8,000PLN 30,000
  1. Increase of the bracket threshold from PLN 85,525 to PLN 120,000, up to which advances against income tax will be payable at 17%. Only income exceeding PLN 120,000 will be taxed at the 32% rate.
ChangeCurrent valueValue from 2022
Threshold for the second tax bracketPLN 85,525PLN 120,000
  1. Unification of health-insurance contributions at 9% for taxpayers taxed under general rules (the tax scale), the flat rate on recorded revenue (ryczałt), and the tax card (karta podatkowa).
  1. Elimination of the possibility of deducting health-insurance contributions from income tax in the case of taxation at the 19% flat rate (liniowy) or the tax scale.

The health-insurance contribution will be assessed on income (less social insurance contributions, if not deducted as a tax cost) and will constitute:

Form of taxationTax rateAmount of health-insurance contribution
Flat rate19%4.9% of income
Tax scale17%/32%9% of income

The health-insurance contribution will not be lower than 9% of the minimum monthly wage in force as of 1 January of the contribution year. It is projected that from 2022 the minimum health-insurance contribution will be PLN 271 per month.

Monthly revenue (income)Health-insurance contribution—flat rate
up to PLN 5,510PLN 270.90
PLN 8,000PLN 392.00
PLN 10,000PLN 490.00
PLN 12,000PLN 588.00
PLN 13,000PLN 637.00
PLN 15,000PLN 735.00
PLN 20,000PLN 980.00
PLN 30,000PLN 1,470.00
Monthly income (income)Health-insurance contribution in 2022—tax scale
PLN 3,010PLN 270.90
PLN 5,000PLN 450.00
PLN 7,000PLN 640.00
PLN 8,000PLN 720.00
PLN 10,000PLN 900.00
PLN 12,000PLN 1,080.00
PLN 13,000PLN 1,170.00
PLN 15,000PLN 1,350.00
PLN 20,000PLN 1,800.00
PLN 30,000PLN 2,700.00

Data on amounts of health-insurance contributions in 2022 from zus.info.pl

  1. Elimination of the possibility of deducting health-insurance contributions from income tax in the case of taxpayers taxed at the flat rate on recorded revenue.

In the case of settlement of tax under the flat rate on recorded revenue, the health-insurance contribution will be 9%, payable at three different tax thresholds. The amount will be linked with the average monthly wage, which in 2022 is projected to be PLN 5,922.

Annual revenueMonthly health-insurance contribution
up to PLN 60,0009% contribution based on 60% of average monthly wage—PLN 305.56
PLN 60,001300,0009% contribution based on 100% of average monthly wage—PLN 509.27
300,001 and up9% contribution based on 180% of average monthly wage—PLN 917.00
  1. Reduction of the tax rate to 14% in the case of taxation at the flat rate on recorded revenue generated by persons practising medical and technical professions.
  1. Introduction of the tax rate of 12% in the case of taxation at the flat rate on recorded revenue generated by persons performing certain IT services.
  1. Introduction of the concept of the “contribution year,” which will be linked to calculation of the basis for health-insurance contributions. The contribution year will run from 1 February of a given year through 31 January of the following year.
  1. Introduction of “middle-class relief,” which will be taken into account when calculating advances against income tax. This relief will be available to persons generating revenue from PLN 5,701 to 11,141 per month, i.e. PLN 68,412–133,692 annually, subject to taxation under the tax scale.

This relief will be applied only to persons working under an employment contract or operating a business settling tax under general rules (according to the tax scale).

This relief will not apply to persons working under a contract of mandate (umowa zlecenia) or a contract to perform a specific work (umowa o dzieło). Nor will it be available to business operators taxed at the flat rate, persons performing activities personally, payers of flat-rate tax on recorded revenue or under the tax card, retirement pensioners or disability pensioners.

For purposes of the new middle-class relief, within the range of income mentioned above, taxpayers will be divided into two narrower groups:

  • Persons generating revenue of PLN 5,701.00–8,549.00 per month
  • Persons generating revenue of PLN 8,549.01–11,141.00 per month.

The difference between these groups will be the manner of calculation of the relief. For the first income range (PLN 5,701.00–8,549.00), the relief will be calculated using the formula:

((Income*6.68%-PLN 380.50))/0.17

For the second income range (PLN 8,549.01–11,141.00) it will be calculated using the formula:

((Income*(-7.35%)+PLN 819.08))/0.17

In the case of spouses settling income tax jointly for the whole year, each of them will be able to deduct the middle-class relief only up to half of the sum of the total income earned by the spouses during the tax year, calculated according to the statutory formula.

Middle-class relief will apply only within the range of annual income from PLN 68,412 to 133,692. This means that if the taxpayer exceedsthis ceiling in a given year, even by a single zloty, the taxpayer will lose the right to middle-class relief. This will lead to a highly unfavourable situation for the taxpayer. If the taxpayer claims the middle-class relief in the monthly settlement, but it turns out in the annual tax return that the taxpayer exceeded the allowable limit, the taxpayer will have to refund the relief, and will be forced to pay a large shortfall in tax along with the annual PIT return.

Therefore, everyone should carefully examine their anticipated annual income. This should reflect not only monthly salary, but also additional taxable income, such as various types of supplements, overtime pay, bonuses, cash equivalents for unused holiday, in-kind benefits (healthcare or athletic subscriptions) and the like. Based on this analysis, the taxpayer should decide whether to claim the middle-class relief in monthly settlements, or not.

  1. Elimination from 1 January 2022 of the possibility for taxpayers to elect for the first time to be taxed under the tax card, while maintaining vested rights on the part of taxpayers using this form of taxation prior to that date.
  1. Exclusion from 1 January 2022 of the possibility of taxation under the tax card of physicians, dentists, paramedics, dental technicians, nurses and midwives, if they perform activity for legal persons or organizational units without legal personality, or for individuals for purposes of their business activity—for example for hospitals or clinics.

Due to the changes in the regulations governing the TaxFree procedure, taxpayers intending to introduce VAT refunds for travellers into their operations, or continue making such refunds, must register in the TaxFree system on the PUESC platform by 31 December 2021.

How does it work?

The TaxFree procedure consists of the possibility of obtaining a VAT refund on goods purchased in Poland by travellers, or, on the seller’s side, the possibility of applying a 0% VAT rate under certain conditions. Individuals living outside the EU who have removed their purchased products from the EU can apply for a VAT refund on their purchases. The value of the goods entered in a single document must exceed PLN 200. The VAT can be refunded by the seller or by an entity designated by the seller.

Necessary conditions for VAT refunds

To carry out VAT refunds, certain conditions must be met:

  • The seller must be an active VAT payer recording sales using a cash register (at each point of sale).
  • The head of the tax office must be notified of commencement of TaxFree sales. From 2022 TaxFree registration in the PUESC system will replace this requirement.
  • The seller must make information available to travellers concerning the rules for VAT refunds in four languages—English, German, Polish and Russian—and label points of sale with a sign informing customers of the possibility of using the TaxFree procedure (this is a statutorily established logo, which should be modified along with the changes introduced from 2022).
  • The head of the tax office must be notified of the place where the traveller making the purchase of goods may receive the tax refund, and in the case of designation of an entity to pay out the refunds, copies of contracts in force with these entities must be submitted. From 2022, this element will be included in registration on the PUESC platform.
  • From 2022, in connection with the change in regulations, a further condition is registration in the TaxFree system on the PUESC platform.

Documents required to apply the procedure

Through 31 December 2021

As of now, to obtain a refund, the traveller must present the refund document (issued by the seller) along with a fiscal receipt containing a stamp from customs confirming that the product was removed from EU territory.

From 1 January 2022

In connection with the revised regulations, the complete set of documents will be issued and transmitted electronically from the national TaxFree system located on the PUESC platform.

Using this system, the seller will issue and store documents, record amounts of VAT refunds paid out to travellers, and also indicate the place of sale and refund of VAT.

In light of introduction of the electronic system, it will be necessary to use online cash registers. The seller will not be required to attach a physical cash register receipt to the TaxFree document, as the receipt will be electronic.

Tax advantages for the seller

When applying the TaxFree procedure, the seller can apply the 0% VAT rate for goods subject to the procedure. To apply this rate, the seller must meet several conditions:

  • Register in the TaxFree system on the PUESC platform
  • Fulfil the aforementioned conditions authorizing the seller to make refunds to travellers
  • Hold documents confirming the VAT refund obtained by the traveller, e.g. confirmation of the bank transfer
  • Hold documents confirming removal of the goods from the EU.

The seller can apply the 0% VAT rate in two instances:

  • In the VAT SAF-T file (JPK_VAT) for the given settlement period, if prior to submission of the file the seller receives documents confirmed by the customs office showing that the goods were removed from the EU, or
  • If the first condition is not met, through a tax correction in the month of receipt of the aforementioned documents, if the seller receives them within 10 months after sale of the goods. The seller will first have to tax the sale under general rules, and then, after fulfilling the condition of possession of the document, the seller will able to reduce the previously reported VAT.

Registration procedure

To commence TaxFree sales from 2022, it will be necessary to register in the PUESC system. Registration involves:

  • Establishing an account on the PUESC platform indicating TaxFree activity, or updating the information in an existing account
  • Completion of a TaxFree form, in which the seller should:
    • Indicate the sales locations and link them to online cash registers
  • Add the names of employees assigned specific authorization to handle the VAT refund procedure (optional)
    • Declare the entities with which the seller has signed a contract to carry out the refunds (if applicable).

If you have additional questions or doubts about the TaxFree procedure or registration for the procedure, we are ready to help.

Undoubtedly, it is no easy task to orient oneself among the thicket of new regulations. Many employees are already wondering what net pay they will receive in January 2022. Especially for you, we have compiled information presenting the key tax solutions provided for in the Polish Deal, and we have also prepared sample pay calculations showing who will gain from the Polish Deal, at what income levels, who will lose, and those for whom the changes will have a neutral impact.

Key tax changes introduced by the Polish Deal from 1 January 2022 affecting employees’ pay:

  1. Raising the ceiling from PLN 85,525 to PLN 120,000 on which the advance on income tax will be 17%. This means that the 32% income tax rate will kick in only when income exceeds PLN 120,000.
  2. Relief for young workers—the limit of income exempt from PIT for taxpayers up to age 26 (PIT Act Art. 21(1)(148)) will remain changed, at PLN 85,528. Persons up to age 26 will thus pay income tax only after crossing this limit, and initially at the 17% rate. However, if their taxable income exceeds PLN 120,000, the 32% rate will apply.
  3. Increase in the tax-exempt amount from PLN 8,000 to PLN 30,000 annually, which will affect the amount reducing the tax. The amount reducing the tax will also be available to taxpayers in the second tax bracket. Currently, taxpayers at the 32% bracket have not been entitled to a tax-free amount. Currently the monthly tax relief is PLN 43.76 (i.e. 1/12 of PLN 525.12), but after the changes it will be PLN 425.00 (based on the calculation PLN 30,000 × 17% = PLN 5,100/12 = PLN 425.00).

To claim the monthly deductions of the tax-free amount in calculating the worker’s pay, the employee should complete a PIT-2 statement and submit it to the employer.

  1. Increase of the amount of revenue subject to 50% revenue-earning costs for copyright and related rights and disposal of such rights (applicable to employees who are creators, artists or performers). Currently the 50% costs (on the bases referred to in PIT Act Art. 22(9)(1)–(3)) cannot exceed PLN 85,525 in the tax year. In 2022 this total will increase to PLN 120,000.
  2. Introduction of “middle-class relief,” which will be reflected in calculating income-tax advances. This relief is provided for employees earning revenue from PLN 5,701 to 11,141 per month, i.e. PLN 68,412 to 133,692 per year, taxed under the tax scale.

This relief applies only to employees working under an employment contract or persons operating a business and paying income tax under general rules (i.e. according to the tax scale).

Middle-class relief will also be available to creative employees earning revenue subject to 50% revenue-earning costs, on the condition that they are persons actually performing duties under an employment relationship.

Employees earning income abroad (from a foreign employer) will also be eligible for middle-class relief if they pay PIT advances themselves in Poland. They will deduct the relief for months in which their income from foreign employment falls between PLN 5,701 and 11,141.

This relief will not apply to persons performing work under a contract of mandate or contract for a specific work. Nor will it be available to business operators paying PIT at the flat rate of 19%, persons performing personal services, taxpayers paying PIT based on a flat rate on recorded revenue, or under the tax card, or recipients of retirement or disability pensions.

As part of the new middle-class relief, within the range referred to above, taxpayers are divided into two narrower groups:

  • Persons earning revenue from PLN 5,701.00 to 8,549.00 per month 
  • Persons earning from PLN 8,549.01 to 11,141.00 per month.

The difference between these two groups will consist in the manner of calculation of the relief. For the lower income range, the relief will be calculated using the formula:

(income × 6.68% ˗ PLN 380.50)/0.17

And for the higher income range:

(income × (˗7.35%) + PLN 819.08)/0.17

In the case of spouses settling income tax jointly for the whole year, each of them will be able to deduct the middle-class relief only up to half of the sum of the total income earned by the spouses during the tax year, calculated according to the statutory formula.

Middle-class relief applies only within the range of annual income from PLN 68,412 to 133,692. This means that if the taxpayer exceeds this ceiling in a given year, even by a single zloty, the taxpayer will lose the right to middle-class relief. This will lead to a highly unfavourable situation for the employee. If the employee claims the middle-class relief in the monthly settlement of pay, but it turns out in the annual tax return that the employee exceeded the allowable limit, the taxpayer will have to refund the relief, and will be forced to pay a large shortfall in tax along with the annual PIT return.

Therefore, employees should carefully examine their anticipated annual income. This should reflect not only monthly salary, but also additional taxable income, such as various types of supplements, overtime pay, bonuses, cash equivalents for unused holiday, in-kind benefits (healthcare or athletic subscriptions) and the like. Based on this analysis, the taxpayer should decide whether to claim the middle-class relief in monthly settlements, or not.

The remitter of PIT advances (i.e. the employer) will not be required to apply the middle-class relief only if the employee requests the employer not to reduce the employee’s net income (PIT Act Art. 32(2b)). Waiver of middle-class relief may be a good solution if the taxpayer can predict that the final annual income from work will exceed PLN 133,692, or does not wish to risk crossing that line. If the final settlement shows that the employee nonetheless is entitled to middle-class relief, the taxpayer can recover the unclaimed relief along with his or her annual PIT return.

But if the employee fails to request that the employer not reduce the employee’s net income to reflect the middle-class relief, the employer will have no option but will have to factor in the relief in any month in which the employee’s income from employment (including supplements and other taxable benefits) falls within the statutory range of PLN 5,701–11,141.

  1. Increase of the annual basis for calculating retirement and disability pension insurance from PLN 157,770 to PLN 177,660. Above that amount, the employer and employee will cease to pay additional retirement and disability pension contributions.
  2. The inability to deduct a portion of the health insurance contribution (7.75%) from income tax, meaning that employees will effectively pay their full health insurance contribution of 9%, and not 1.25% as is currently the case.
  1. Introduction of a new rule requiring payment of health insurance contributions for:
  • Management board members and commercial proxies, who will pay a 9% health insurance contribution (before, this group was excluded from paying health insurance contributions). Persons serving pursuant to an act of appointment and receiving compensation accordingly will be subject to health insurance. The obligation to pay the 9% health insurance contribution will arise upon appointment and cease upon removal from office, and the party paying the person’s compensation will be required to register the individual for health insurance coverage. In other words, the entity appointing a commercial proxy or management board member and paying his or her compensation will be the remitter—in the case of a commercial proxy, only of the health insurance contribution, and in the case of a management board member, as in previous years, of advances against PIT and also, from 2022, health insurance contributions.
  • Business operators, i.e. individuals running economic activity:
    • Taxed under general rules will pay 9%
    • Taxed at the flat rate will pay 4.9%
    • Taxed at the flat rate on recorded revenue will pay contributions based on 60% to 180% of the average wage (depending on the amount of income)
    • Taxed under the tax card will pay 9% of the minimum wage.
  1. New tax relief for income up to PLN 85,528 is introduced for:
  • Parents exercising parental authority over at least four children. This relief will apply separately to each of the parents. Based on this new tax relief, a parent of four children earning gross income from work each month of up to about PLN 9,600 will not pay income tax.
  • Persons returning from abroad for four successive years after the year of the move. This regulation is designed to encourage Poles to return home, but also to encourage foreigners to change their tax residence to Poland. The exemption from tax on income tax on an amount not exceeding PLN 85,528 during the tax year will be available to any taxpayer who transfers their place of residence to Polish territory. The relief for persons returning from abroad will be available in four consecutive years following the tax year, counting from the start of the year, in which the taxpayer moved their residence, or from the start of the following year.
  • Working seniors, who despite reaching age 60 (for women) or 65 (for men) decide, instead of claiming a retirement pension, family disability, or benefits for the uniformed services or judges, to continue working, performing contracts of mandate, or operating a business. Only income that is a basis for social insurance will be subject to tax relief. The tax exemption for professionally active persons of retirement age not collecting retirement pensions (within the limit of PLN 85,528) will apply only to income earned from an official relationship, an employment relationship, cottage industry (piecework), cooperative employment, under contracts of mandate referred to in PIT Act Art. 13(8), and from non-agricultural economic activity. Income earned under a managerial contract or copyright agreement will not benefit from this tax relief.

The workers listed above will not pay tax on annual income up to PLN 85,528. Adding in the increased tax-free exemption of PLN 30,000, in the case of persons settling under the tax scale this relief will cover a total income of PLN 115,528 per year.

In the case of parents of four or more children filing jointly, the total exclusion will be PLN 231,056 per year. Such parents will not pay income tax until they cross the limit of PLN 231,056, and then the 17% rate will apply, and the 32% rate will apply from the point where their taxable income exceeds PLN 120,000.

If the taxpayer is eligible for exemption on more than one basis, the total tax-free amount for all such income cannot exceed PLN 85,528 (plus the tax-free amount up to PLN 30,000 for taxpayers settling under the tax scale).

When analysing the new regulations for persons from the foregoing social groups, who from January 2022 will be covered by a tax exemption, many doubts arose surrounding the proper calculation of the amount of the health insurance contributions for those taxpayers. A gap in the regulations was discovered in this respect. Thus these provisions were clarified in the final parliamentary amendment to the bill on 17 November 2021. Consequently, with respect to these persons, the same rule for calculation of the health insurance contribution will apply as in the case of persons up to age 26 exempt from income tax under PIT Act Art. 21(1)(148). This refers to a special provision, Art. 83(2a) of the Healthcare Act. It provides for calculation of the health insurance contribution up to the amount of the hypothetical PIT advance. This provision states that “if the contribution for health insurance calculated on income exempt from income tax under Art. 21(1)(148) of [the PIT Act] is higher than the advance against personal income tax which the remitter would calculate if the income of the insured were not exempt from income tax under that provision, the contribution calculated for specific months shall be reduced to the amount of such advance.”

  1. Introduction of a new sanction against illegal hiring and payment “under the table.” Contributions for retirement, disability and sickness insurance on such salary will be chargeable solely against the employer, also in the portion subject to financing by the insured (the employee). They will also be excluded from the employer’s revenue-earning costs. There is a risk that these regulations will be interpreted broadly. The tax authorities may seek to include in this category not only instances where the employer never confirmed the terms of employment in writing, but also where a written contract of another type was concluded, e.g. a contract of mandate or B2B contract, when the terms of cooperation demonstrate that there is actually an employment relationship between the parties. With an eye to the risk of broad application of these new rules, taxpayers should now consider verifying all contracts of mandate or B2B contracts they use in self-employment situations which might create an impression that in reality they are employment contracts or de facto establish an employment relationship.

We have prepared sample pay calculations for 2021 and 2022, to depict calculations of workers’ pay according to the new regulations and help estimate who will gain under the Polish Order, and at what levels of income, who will lose, and for whom the changes will have a neutral effect.

Analysis of income at which employees gain from the Polish Deal, and income from which they begin to lose on the Polish Deal

Assumptions: An employee under an employment contract, earning the monthly pay indicated in the table, with revenue-earning costs of PLN 250 per month, settling income tax individually, not claiming relief for children, and not participating in an employment capital plan (PPK).

Monthly gross pay

Gain/(loss) in 2022 compared to 2021

Monthly

Annually

Comments

               3,010.00 

154.00 

1,848.00 

 

               4,000.00 

 114.00 

1,368.00 

 

               5,000.00 

 47.00 

564.00 

 

               5,701.00 

-

-

Middle-class tax relief

               7,000.00 

Middle-class tax relief

               8,000.00 

-   

Middle-class tax relief

               8,916.00 

(-52.00) 

(-10.00) 

Middle-class tax relief. Smaller loss annually than monthly (*)

             10,000.00 

(-203.00) 

(-95.00) 

Middle-class tax relief. Smaller loss annually than monthly (*)

             11,141.00 

(-364.00) 

(-211.00) 

Middle-class tax relief. Smaller loss annually than monthly (*)

             11,350.00 

(-377.00) 

  -   

Smaller loss annually than monthly (*)

             11,400.00 

(-381.00) 

28.00 

Smaller loss annually than monthly (*)

             12,000.00 

(-421.00) 

292.00 

Smaller loss annually than monthly (*)

             12,300.00 

(-441.00) 

53.00 

Smaller loss annually than monthly (*)

             12,360.00 

(-446.00) 

(-6.00) 

Smaller loss annually than monthly (*)

             13,000.00 

(-489.00) 

(-477.00) 

Smaller loss annually than monthly (*)

             14,000.00 

(-555.00) 

(-1,357.00) 

Smaller loss annually than monthly (*)

             15,000.00 

(-622.00) 

(-2,225.00) 

Smaller loss annually than monthly (*)

             18,000.00 

(-823.00) 

(-4,905.00) 

Smaller loss annually than monthly (*)

             20,000.00 

(-956.00) 

(-6,713.00) 

Smaller loss annually than monthly (*)

(*) as a result of the higher tax threshold and tax-free amount in 2022 compared to 2021

Example 1. Calculation of the pay of an employee who is not entitled to middle-class tax relief or has waived middle-class tax relief

Assumptions: An employee under an employment contract, earning the monthly pay indicated in the table, with revenue-earning costs of PLN 250 per month, settling income tax individually, not claiming relief for children, and not participating in an employment capital plan (PPK).


Elements

Formula for calculation

 2021 

 2022 

1.

Monthly gross pay 

 

          3,010.00 

          3,010.00 

2.

Retirement pension insurance contribution

Item 1 × 9.76%

              293.78 

              293.78 

3.

Disability pension insurance contribution

Item 1 × 1.5%

                45.15 

                45.15 

4.

Sickness insurance contribution

Item 1 × 2.45%

                73.75 

                73.75 

5.

Employee’s total social insurance (ZUS) contributions

Item 2 + item 3 + item 4

             412.67 

             412.67 

6.

Basis for health insurance contribution

Item 1 – item 5

          2,597.33 

          2,597.33 

7.

Health insurance contribution (9%)

Item 6 × 9%

             233.76 

             233.76 

8.

Portion of health insurance contribution to be deducted from income tax (7.75%)

Item 6 × 7.75%

              201.29 

 eliminated 

9.

Revenue-earning costs (PLN 250 or 300)

 

              250.00 

              250.00 

10.

Middle-class tax relief (not eligible)

 

 N/A 

                      -   

11.

Net income for taxation

Item 1 – item 5 – item 9 (result rounded to a whole zloty)

          2,347.00 

          2,347.00 

12.

Tax relief (tax-free amount)

 

                43.76 

              425.00 

13.

Income tax advance before rounding

(item 11 × 17%) – item 12

              355.23 

 (- 26.01) 

14.

Income tax advance 

Item 13 – item 8 (result rounded to a whole zloty)

             154.00 

                      -   

15.

Net pay

Item 1 – item 5     – item 7 – item 14

          2,209.57 

          2,363.57 

16.

Increase/(decline) in net income 

 

 

             154.00 

Example 2. Calculation of the pay of an employee who is entitled to middle-class tax relief in the 1st group of income range, i.e. earns income of PLN 5,701.00 to 8,549.00 per month

Assumptions: An employee under an employment contract, earning the monthly pay indicated in the table, with revenue-earning costs of PLN 250 per month, settling income tax individually, not claiming relief for children, and not participating in an employment capital plan (PPK).


Elements

Formula for calculation

 2021 

 2022

1.

Monthly gross pay 

 

             5,702.00 

             5,702.00 

2.

Retirement pension insurance contribution

Item 1 × 9.76%

                 556.52 

                 556.52 

3.

Disability pension insurance contribution

Item 1 × 1.5%

                   85.53 

                   85.53 

4.

Sickness insurance contribution

Item 1 × 2.45%

                 139.70 

                 139.70 

5.

Employee’s total social insurance (ZUS) contributions

Item 2 + item 3 + item 4

                 781.74 

                 781.74 

6.

Basis for health insurance contribution

Item 1 – item 5

              4,920.26 

              4,920.26 

7.

Health insurance contribution (9%)

Item 6 × 9%

                 442.82 

                 442.82 

8.

Portion of health insurance contribution to be deducted from income tax (7.75%)

Item 6 × 7.75%

                 381.32 

 eliminated 

9.

Revenue-earning costs (PLN 250 or 300)

 

                 250.00 

                 250.00 

10.

Middle-class tax relief (income from PLN 5,701.00 to 8,549.00 monthly)

(Income x 6.68% - PLN 380.50)/0.17

 N/A 

                     2.32 

11.

Net income for taxation

Item 1 – item 5 – item 9 – item 10 (result rounded to a whole zloty)

              4,670.00 

              4,668.00 

12.

Tax relief (tax-free amount)

 

                   43.76 

                 425.00 

13.

Income tax advance before rounding

(item 11 × 17%) – item 12

                 750.14 

                 368.56 

14.

Income tax advance 

Item 13 – item 8 (result rounded to a whole zloty)

                 369.00 

                 369.00 

15.

Net pay

Item 1 – item 5     – item 7 – item 14

             4,108.43 

             4,108.43 

16.

Increase/(decline) in net income 

 

 

                       0   

Example 3. Calculation of pay of an employee who is entitled to middle-class tax relief in the 2nd group of income range, i.e. earns income of PLN 8,549.01 to 11,141.00 per month

Assumptions: An employee under an employment contract, earning the monthly pay indicated in the table, with revenue-earning costs of PLN 250 per month, settling income tax individually, not claiming relief for children, and not participating in an employment capital plan (PPK).


Elements

Formula for calculation

2021

2022

1.

Monthly gross pay 

 

           10,000.00 

           10,000.00 

2.

Retirement pension insurance contribution

Item 1 × 9.76%

                976.00 

                976.00 

3.

Disability pension insurance contribution

Item 1 × 1.5%

                150.00 

                150.00 

4.

Sickness insurance contribution

Item 1 × 2.45%

                245.00 

                245.00 

5.

Employee’s total social insurance (ZUS) contributions

Item 2 + item 3 + item 4

             1,371.00 

             1,371.00 

6.

Basis for health insurance contribution

Item 1 – item 5

             8,629.00 

             8,629.00 

7.

Health insurance contribution (9%)

Item 6 × 9%

                776.61 

                776.61 

8.

Portion of health insurance contribution to be deducted from income tax (7.75%)

Item 6 × 7.75%

                668.75 

 eliminated 

9.

Revenue-earning costs (PLN 250 or 300)

 

                250.00 

                250.00 

10.

Middle-class tax relief (income from PLN 8,549.01 to 11,141.00 monthly)

(Income x (-7.35%) + PLN 819.08)/0.17

N/A 

                494.59 

11.

Net income for taxation

Item 1 – item 5 – item 9 – item 10 (result rounded to a whole zloty)

             8,379.00 

             7,884.00 

12.

Tax relief (tax-free amount)

 

                   43.76 

                425.00 

13.

Income tax advance before rounding

(item 11 × 17%) – item 12

             1,380.67 

                915.28 

14.

Income tax advance 

Item 13 – item 8 (result rounded to a whole zloty)

                712.00 

                915.00 

15.

Net pay

Item 1 – item 5     – item 7 – item 14

             7,140.39 

             6,937.39 

16.

Increase/(decline) in net income

 

 

(- 203.00) 

Potential fines for non-compliance with transfer pricing obligations

Fines are imposed as multiples of “per diem” charges. Under Art. 23 §3 of the Fiscal Penal Code, a single per diem charge cannot be lower than 1/30th of the minimum monthly wage in Poland or higher than 400 times 1/30th of the minimum monthly wage. Consequently, in 2021 the per diem charge can range between PLN 93.33 and PLN 37,333.33.

  • Failure to prepare transfer pricing documentation on time is subject to a fine of up to 120 per diem charges, and thus in 2021 the maximum fine would be about PLN 4.5 million.
  • Preparing transfer pricing documentation with inaccurate information is subject to a fine of up to 240 per diem charges, and thus in 2021 a maximum of about PLN 9 million.
  • Filing a false statement on preparation of complete tax documentation, failure to file a TPR form with the head of the National Revenue Administration, late filing of a TPR form, or filing a TPR form with inaccurate information can be subject to a fine of up to 720 per diem charges, i.e. in 2021 up to about PLN 27 million.

The Polish Deal and criminal sanctions for transfer pricing compliance

The Polish Deal package introduces several key tax changes, but in this context the changes in sanctions under the Fiscal Penal Code are particularly notable.

Increase of the gross minimum monthly wage to PLN 3,010 will change the level of per diem charges, which from the start of 2022 will range from PLN 100.33 to PLN 40,133.33.

The fine for failure to prepare local transfer pricing documentation (known as a “local file”) even though the taxpayer has reached the documentation requirement will be up to 720 per diem charges. The same fine will potentially apply to the duty to prepare group transfer pricing documentation (master file). Consequently, the maximum fine for the taxpayer’s failure to prepare transfer pricing documentation starting from 2022 may be as high as nearly PLN 29 million.

Preparing local or group transfer pricing documentation after the statutory deadlines will entail a risk of a fine of up to 240 per diem charges, which in an extreme case from 2022 may be as high as more than PLN 9.5 million. The same penalty will be possible also in the case of filing transfer pricing information after the deadline specified in the Corporate Income Tax Act.

The Polish Deal regulations greatly increase the scope of liability of taxpayers’ management board members, and can also increase the scope of liability for noncompliance with transfer pricing obligations.

The act was signed into law by the President and enters into force at the start of 2022.

I. Main points of the "Polish Deal" TAX programme

  1. Raising to PLN 30,000 the annual amount of income tax-free from personal income tax for taxpayers paying PIT according to the tax scale (e.g. persons working under an employment contract, contract of mandate, or contract for a specific work);
  2. Raising to PLN 120,000 the threshold of income beyond which the higher income tax rate of 32% will apply;
  3. Introduction of the middle class tax relief for employees and taxpayers with income from non-agricultural business activities taxed on a general basis;
  4. Elimination of the possibility of deducting health insurance contributions from income tax;
  5. Recognizing 20% deductible revenue-earning costs on income earned by persons performing social or civic duties;
  6. Elimination ofthe tax preference for single parents and simultaneous introduction of a PLN 1,500.00 allowance (for single parents or legal guardians);
  7. Recognizing the right to file a joint marital tax return also for the year in which the marriage was contracted, including in the event of the death of one of the spouses in the year of the marriage or the following year;
  8. Expansion of the catalogue of subject-matter exemptions to include inter alia income from the sale of historic movables to museums or libraries, doctoral stipends, or income from sale of shares acquired in an initial public offering
  9. Expansion of the catalogue of subject-matter exemptions to persons transferring their place of residence to Poland, persons bringing up at least four children and persons who have reached retirement age, but are still working and do not receive Social Security benefits;
  10. Clarification and addition of new expenditures eligible for deduction as part of rehabilitation relief (e.g. expenditures for purchase, repair or rental of medical devices and furnishings facilitating the use of medical devices, and expenditures on rental or repair of individual rehabilitation equipment);
  11. Introduction of preferences for taxpayers investing in alternative investment companies;
  12. Introduction of relief for expenditures incurred for protection or conservation
    of landmarks;
  13. Introduction of relief for taxpayers settling in Poland (known as “relief for return”);
  14. Introduction of lump-sum taxation on foreign income of persons moving their tax residency to Poland;
  15. Obligation to settle private rental in the form of flat-rate income tax (the change will take effect on January 1, 2023; buildings and premises acquired by December 31, 2021 can still be depreciated in 2022);
  16. Changes in the scope of taxation of income from the receipt by a partner who is a natural person of property from a partnership which is not a legal person;
  17. Changes in the scope of determining a monetary value of gratuitous benefits to which an employee is entitled due to the use of company car for private purposes;
  18. Clarification of the rules for claiming tax relief for children indicating that the the relief is available to alternating custodial parents in equal shares;
  19. Introduction of a transitional income tax as a solution addressed to entities willing to disclose previously untaxed income or withdraw from previously undertaken optimization measures, including those with cross-border scope;
  20. Introduction of changes in the rules concerning reorganization of entities, aimed at counteracting the situation in which tax neutrality could lead to exemption from capital gains tax. 

II. Changes in income tax for individuals conducting business activity

  1. Raising to PLN 30,000 the annual amount of income tax-free from personal income tax for persons operating an individual business taxed according to the tax scale;
  2. Raising to PLN 120,000 the threshold of income beyond which the higher income tax rate of 32% will apply;
  3. Unifying the rate for health insurance contributions at 9% for taxpayers taxed according to general rules, registered lump sum and tax card ( calculated respectively on income, revenue, minimum wage as at January 1 of the contribution year) and elimination of the possibility of deducting health insurance contributions from income tax;
  4. Introduction of health contribution in the amount of 4.9% of the income for taxpayers taxed on a flat rate (but not less than 9% of the amount of the minimum remuneration for work in force on 1 January of the year of contribution) and elimination of the possibility of deducting health insurance contributions from income tax;
  5. Elimination of the possibility of taking amortisation deductions for residential buildings and units (this restriction will enter into force on January 1, 2023 for buildings and premises purchased by December 31, 2021);
  6. Introduction of changes in amortization in real estate companies by limiting the amount of depreciation write-offs on real estate, that can be included in tax costs to the amount of depreciation write-offs made according to the principles of the Accounting Act;
  7. Introduction of relief for business operators incurring costs for employment of workers in connection with R&D activity, production of prototypes of new products, market launch of new products, or increase of revenue from sale of products;
  8. Introduction of relief for robotics;
  9. Enabling simultaneous benefit from R&D relief and the IP Box incentive;
  10. Introduction of relief for taxpayers supporting sports, culture, higher education
    and science;
  11. Introduction of relief for expenditures incurred for protection or conservation
    of landmarks;
  12. Promotion of cashless turnover by introducing relief for acquisition of payment terminals and fees for use of payment terminals;
  13. Introduction of regulations designed to combat the “grey zone,” i.e. illegal hiring
    of employees, including hiring off the books and failure to report a portion of the employee’s pay;
  14. Introduction of regulations tightening the income tax system, involving:
    • Expanding the catalogue of assets used in conducting business, sale of which after they are withdrawn from business use is allocated to business income
    • Determination of the initial tax value of assets subject to amortisation, acquired before commencement of business activity
    • 70% flat-rate taxation of certain severance benefits or damages
  15. Introduction of the obligation to transfer books and records using computer programs, as well as the obligation to send them in a structured form within the deadline for determining monthly advances and submitting a return for the tax year (the obligation will enter into force on January 1, 2023);
  16. Changes in the terms of using the tax exemption in PSI and SEZ;
  17. changes in the provisions relating to the Foreign Controlled Unit;
  18. Reduction of the tax rate to 14% for flat-rate taxation of recorded revenue received by persons practising medical or technical professions;
  19. Introduction of a 12% tax rate for flat-rate taxation of recorded revenue received
    by persons providing certain IT services;
  20. Elimination from 1 January 2022 of the possibility for taxpayers to make an initial election of taxation under the “tax card” system, while maintaining vested rights acquired under this system by taxpayers electing this form of taxation before that date;
  21. Elimination from 1 January 2022 of taxation under the “tax card” system by doctors and dentists, feldsher surgeons, dental technicians and nurses and midwives, if they carry out activities for legal persons and organizational units without legal personality or for natural persons for the purposes of their business activities (so for example for hospitals or clinics).

III. Changes for corporate income tax payers

  1. Raising to PLN 30,000 the annual amount of income tax-free from personal income tax for persons operating an individual business taxed according to the tax scale;
  2. Raising to PLN 120,000 the threshold of income beyond which the higher income tax rate of 32% will apply;
  3. Unifying the rate for health insurance contributions at 9% for taxpayers taxed according to general rules, registered lump sum and tax card ( calculated respectively on income, revenue, minimum wage as at January 1 of the contribution year) and elimination of the possibility of deducting health insurance contributions from income tax;
  4. Introduction of health contribution in the amount of 4.9% of the income for taxpayers taxed on a flat rate (but not less than 9% of the amount of the minimum remuneration for work in force on 1 January of the year of contribution) and elimination of the possibility of deducting health insurance contributions from income tax;
  5. Elimination of the possibility of taking amortisation deductions for residential buildings and units (this restriction will enter into force on January 1, 2023 for buildings and premises purchased by December 31, 2021);
  6. Introduction of changes in amortization in real estate companies by limiting the amount of depreciation write-offs on real estate, that can be included in tax costs to the amount of depreciation write-offs made according to the principles of the Accounting Act;
  7. Introduction of relief for business operators incurring costs for employment of workers in connection with R&D activity, production of prototypes of new products, market launch of new products, or increase of revenue from sale of products;
  8. Introduction of relief for robotics;
  9. Enabling simultaneous benefit from R&D relief and the IP Box incentive;
  10. Introduction of relief for taxpayers supporting sports, culture, higher education
    and science;
  11. Introduction of relief for expenditures incurred for protection or conservation
    of landmarks;
  12. Promotion of cashless turnover by introducing relief for acquisition of payment terminals and fees for use of payment terminals;
  13. Introduction of regulations designed to combat the “grey zone,” i.e. illegal hiring
    of employees, including hiring off the books and failure to report a portion of the employee’s pay;
  14. Introduction of regulations tightening the income tax system, involving:
    • Expanding the catalogue of assets used in conducting business, sale of which after they are withdrawn from business use is allocated to business income
    • Determination of the initial tax value of assets subject to amortisation, acquired before commencement of business activity
    • 70% flat-rate taxation of certain severance benefits or damages
  15. Introduction of the obligation to transfer books and records using computer programs, as well as the obligation to send them in a structured form within the deadline for determining monthly advances and submitting a return for the tax year (the obligation will enter into force on January 1, 2023);
  16. Changes in the terms of using the tax exemption in PSI and SEZ;
  17. changes in the provisions relating to the Foreign Controlled Unit;
  18. Reduction of the tax rate to 14% for flat-rate taxation of recorded revenue received by persons practising medical or technical professions;
  19. Introduction of a 12% tax rate for flat-rate taxation of recorded revenue received
    by persons providing certain IT services;
  20. Elimination from 1 January 2022 of the possibility for taxpayers to make an initial election of taxation under the “tax card” system, while maintaining vested rights acquired under this system by taxpayers electing this form of taxation before that date;
  21. Elimination from 1 January 2022 of taxation under the “tax card” system by doctors and dentists, feldsher surgeons, dental technicians and nurses and midwives, if they carry out activities for legal persons and organizational units without legal personality or for natural persons for the purposes of their business activities (so for example for hospitals or clinics).

III. Changes for corporate income tax payers

  1. Changes in the transfer pricing regulations involving:
    • Definition of associated enterprises;
    • Adjustment of transfer prices;
    • Financial safe harbour mechanism;
    • Local transfer pricing documentation;
    • Extension of the period for submitting transfer pricing documentation requested by tax authorities;
    • Elimination of the statement on preparation of transfer pricing documentation
      as a separate document, moving this, with revised contents, to the transfer pricing information;
  2. Introduction of a “holding regime,” including:
    • Definition of holding company and subsidiary;
    • Extension of the anti-abuse regulations to exemptions from CIT introduced by the holding regime;
    • Exemption for capital gains;
  3. Updating of the provisions on the procedure for collection of withholding tax (“pay
    and refund” mechanism);
  4. Modification of the regulations on flat-rate taxation of corporate income (so-called “Estonian CIT”), with the aim of expanding the catalogue of entities entitled to elect this form
    of taxation, as well as relaxing the conditions that must be fulfilled;
  5. Introduction of relief for enterprises incurring costs for employment of workers in connection with R&D activity, production of prototypes of new products, market launch of new products, or increase of revenue from sale of products;
  6. Introduction of relief for robotics;
  7. Enabling simultaneous benefit from R&D relief and the IP Box incentive;
  8. Introduction of relief for taxpayers supporting sports, culture, higher education and science;
  9. Introduction of relief for costs of an initial public offering for companies listing on the stock exchange;
  10. Promotion of cashless turnover by introducing relief for acquisition of payment terminals and fees for use of payment terminals;
  11. Elimination of the possibility of taking amortisation deductions for residential buildings
    and units (this restriction will enter into force on January 1, 2023 for buildings and premises purchased by December 31, 2021);
  12. Introduction of a requirement for CIT payers to maintain accounting books and tax records using computer programs, and a duty to submit them in structured form by the deadline
    for filing the annual income tax return (the obligation will come into force on January 1, 2023);
  13. Introduction of a new definition of having management in Poland, with the aim of reducing the phenomenon of registration of companies abroad by Polish residents;
  14. Introducing changes in amortisation at real estate companies by limiting the level
    of amortisation write-downs on real estate deductible as tax costs to the write-downs taken in accordance with the rules in the Accounting Act;
  15. Clearing doubts that have arisen in interpretation of thin capitalization rules and adapting them to Polish commercial realities;
  16. Introduction of regulations combatting situations where tax income is reduced in groups of related entities as a result of conversion of debt financing to equity financing;
  17. Introduction into the tax system of a new concept of income shifting, to prevent
    the possibility of obtaining a tax advantage through tax schemes aimed as transferring income to jurisdictions with a negligible effective tax rate;
  18. Introduction of consolidation relief for taxpayers seeking to conduct commercial expansion on Polish and foreign markets by acquiring shares of companies operating on those markets;
  19. Introduction of regulations limiting the generation of artificial costs in the form of payment of “hidden dividends” (regulations will come into force on January 1, 2023);
  20. Amendments to limit the deductibility of debt financing costs;
  21. Introduction of a temporary income tax solution for taxpayers willing to disclose previously untaxed income or to withdraw from previously adopted optimization measures, including measures of cross-border scope;
  22. Changes in the regulations governing reorganizations, aimed at combatting situations
    in which tax neutrality could result in exemption from taxation of capital gains;
  23. Introduction of provisions for a tax on pass-through income;
  24. introduction of an alternative minimum corporate income tax and changes to the cap on the cost of intangible services from related parties;
  25. Relaxation of the rules for establishment and functioning of tax capital groups;
  26. Changes in the conditions for enjoying tax exemptions in the Polish Innovation Zone and special economic zones;
  27. Changes in the regulations governing controlled foreign companies.

IV. Changes in VAT

  1. Enabling joint settlement of VAT by multiple taxpayers, through introduction of VAT groups;
  2. Introducing the possibility of electing taxation of financial services instead of a subject-matter exemption from VAT;
  3. Promotion of cashless turnover in Poland by introduction of:
    • Rapid VAT refunds for cashless taxpayers;
    • Temporary limitation of certain VAT preferences in the case of taxpayers
      not complying with the obligation introduced into the Business Law to be prepared to accept cashless payments;
  4. Changes with respect to binding rate information.

V. Changes in tax procedure regulations

  1. Amendments to the Tax Ordinance:
    • Changes in the anti-avoidance regulations;
    • Changes involving access to information covered by tax secrecy based on international agreements;
    • Introduction into the Polish tax system of a new instrument known as an “investment agreement,” enabling the investor and the tax authority to conclude an agreement
      on the tax consequences of an investment planned to be carried out in Poland;
  2. Amendments to the Act on Exchange of Tax Information with Other Countries:
    • Changes aimed at facilitating the exchange of tax information with other jurisdictions involving resolutions related to advance pricing arrangements and interpretations of tax regulations included in investment agreements;
  3. Amendments to the National Revenue Administration Act:
    • New authorization for the head of the National Revenue Administration to issue warning letters to taxpayers on the risk of cooperation with “disappearing taxpayers”;
    • Introduction of the institution of controlled purchases to uncover irregularities
      in the recording of turnover using cash registers;;
    • Temporary seizure of movables subject to acquisition of the temporary right to dispose of movables necessary for performance of an obligation covered by an enforcement title;
  4. Changes in the Fiscal Penal Code:
    • There is no need to submit voluntary disclosure in relation to JPK_VAT corrections, regardless of whether they relate to the declaration or registration part;
  5. Changes in the Entrepreneurs' Law:
    • Ireduction of the upper threshold of transactions which may be settled in cash from PLN 15,000 to PLN 8,000;
    • Introduction of regulations concerning the necessity for entrepreneurs using cash registers to accept payments with payment instruments and the obligation of such entrepreneurs to ensure cooperation of the cash register with the payment terminal.

Assumptions of the e-commerce package

Currently, most EU countries apply a tax exemption for overseas small-value shipments (up to €22). Too-liberal laws have resulted in a growing scale of abuses in this field, especially in an era of rapid growth in international online trade. European consumers receive huge numbers of parcels imported from third countries that are undervalued by sellers so they can benefit from the exemption. As a result, VAT is not paid into state budgets, even for more expensive packages. The EU estimates €5 billion of VAT is lost each year due to non-compliant practices of online sellers using global shopping portals such as AliExpress, Amazon and eBay.

This is why introduction of appropriate changes and simplification of the taxation system for online trade has now become a top priority for governments and authorities across the EU. The deadline for national implementation of the new legal solutions is 30 June 2021, so there is not much time left. In Poland the main assumptions of the e-commerce package proposal are as follows:

  • Abolishing in all EU countries the VAT exemption for so-called small parcels worth up to €22 and bought online from non-EU countries
  • Significantly extending the scope of B2C transactions subject to the simplified one-stop shop (OSS) procedure (e.g. for the sale of goods imported from third countries like China to EU consumers in parcels with a real value not exceeding €150—in this respect the procedure will function as an import OSS, the so-called import one-stop shop (IOSS))
  • Introducing a VAT exemption for the import of goods from outside the EU by online sellers in shipments with a value not exceeding €150, if VAT is declared and settled in IOSS
  • Making online marketplaces responsible for collection and payment of VAT on certain sales made to EU consumers through intermediating commercial platforms.

 

Obligation to collect VAT

It seems that under the forthcoming regulations the most significant changes will apply to online marketplace facilitators. This means that in certain cases they will be forced to assume the burden of paying VAT on behalf of sellers who are usually not established in the EU, which is the main source of problems in the process of enforcing VAT liabilities. It will be much easier to enforce tax payment from one entity, instead of dozens of small suppliers established outside the EU. This should boost VAT revenue from online sales and increase the efficiency of the EU tax administration. The Polish Ministry of Finance indicates that thanks to the proposed solution, revenues to the national budget may increase by as much as PLN1.2 billion annually. In the ministry’s opinion, such online marketplace facilitators have more resources than the base suppliers who sell through online platforms, so it will be much easier for them to meet the VAT collection requirements.

From 1 July 2021, new obligations may also apply to courier companies and postal services, which will have to collect and pay the VAT due for shipments with a value up to €150, when the supplier of the goods decides not to use IOSS. This will also mean additional administrative obligations, like keeping special import records.

One-stop shop

Pursuant to the proposed EU regulations, the MOSS special procedure will be updated and extended, which will greatly simplify the tax obligations of EU entities conducting online businesses. Thanks to the new one-stop shop (OSS) procedure, taxpayers providing specific services or delivering goods to European consumers will not have to be VAT-registered in all member states where their e-recipients are located. Instead, they will be able to declare and pay VAT in just one country of their choice.

Revolution in e-commerce

Looking ahead, the new year will bring a real revolution for all entities operating in the e-commerce industry. Experts already predict price increases for goods imported from non-EU countries, as well as for courier and logistics services. Nevertheless, the changes are widely anticipated by national fiscal authorities and by distance sellers themselves, whose tax existence should soon be much easier. A draft of the Polish implementing regulations has been circulated for public consultation. Comments can be submitted through 19 November 2020. The changes are to enter into force on 1 July 2021.

Value of transactions

It is planned to correlate the value of controlled transactions with whether the taxpayer is an active VAT payer. If the taxpayer is an active VAT payer, VAT is neutral for the taxpayer, and under the proposed amendment, the value of VAT on a controlled transaction would not be included in calculating the value of the transaction. On the other hand, for taxpayers who are not active VAT payers, VAT is not neutral, and thus, for them, the value of VAT on a controlled transaction would be included in calculating the value of the transaction.

The bill also provides for a more precise manner of calculating the value of a controlled transaction for a deposit, insurance or reinsurance agreement, or a partnership agreement (for an entity that is not a legal person).

The proposed method for determining the value of such transactions is as follows:

  • Deposit agreement—value of principal
  • Insurance contract—insured amount
  • Reinsurance agreement—insured amount
  • Partnership agreement (not a legal person)—total value of contributions.

Deadlines

The bill provides for a number of extensions of deadlines related to transfer pricing obligations. First, the bill would extend the deadline for preparing local transfer pricing documentation through the end of the 10th month, and for submitting the TPR form through the end of the 11th month, after the end of the taxpayer’s tax year. Currently the deadline for local transfer pricing documentation and the TPR form is 9 months.

The deadline for presenting the transfer pricing documentation to the tax authority in case of an audit is to be changed from the current 7 days to 14 days.

Statement

The proposal includes elimination of the separate statement on preparation of transfer pricing documentation and maintenance of the market nature of transactions. Instead, the statement would be included in a modified form applicable to the taxpayer, TPR-C for a corporate income tax payer or TPR-P for a personal income tax payer.

Taxpayers would declare in the statement on preparing local transfer pricing documentation that the local transfer pricing documentation was prepared in accordance with the actual state of affairs and that the transfer prices subject to the documentation were established under terms and conditions that would be agreed between unrelated parties.

According to the proposal, the arm’s-length nature of a transaction to be declared under the relevant TPR form would also need to be maintained where tax revenue is recognized from services that are gratuitous or partially gratuitous, or other benefits in kind that constitute revenue. Income from such transactions would have to be recognized for tax purposes in accordance with the arm’s-length principle.

Transfer pricing information (Form TPR-C/TPR-P)

According to the bill, taxpayers would submit transfer pricing information, i.e. the appropriate TPR form, to the head of the tax office appropriate to the taxpayer. (Currently the TPR form is submitted to the head of the National Revenue Administration.) Under the proposed changes, partnerships (not legal persons) would also be obliged to file transfer pricing information. Such entities would submit the TPR form to the head of the tax office for the registered office or place of business of the partnership. Now this is done by a designated partner of the partnership.

The TPR form is to be filed based on the local transfer pricing documentation, if the taxpayer is obliged to prepare it. In other cases, the TPR form is to be filed based on information in the taxpayer’s financial statements.

According to the bill, the TPR form would be signed in the case of an affiliate that is a natural person by that natural person. However, in the case of a foreign company with a branch in Poland, the person authorized to sign the TPR will be a person authorized to represent the company in the branch.

In addition to the head of the entity or a person authorized to represent it, a proxy acting in accordance with the rules of representation or an attorney for the taxpayer who is an advocate, an attorney-at-law, a tax adviser, or an auditor would also be allowed to sign the transfer pricing information on behalf of the taxpayer.

It is also proposed to abandon the obligation to appoint a partner of a partnership (not a legal person) obliged to submit the transfer pricing information for the partnership. According to the bill, the transfer pricing information would be filed by the partnership, not by a designated partner.

The most important change is the one that, according to the justification for the bill, is intended to end the dispute that has arisen under the current regulations between taxpayers and tax authorities on whether the limit on debt financing costs that can be recognized as tax-deductible costs covers either the “safe harbour” of PLN 3 million or an amount equal to 30% of EBITDA (as the tax authorities hold), or includes the amount of the safe harbour plus 30% of EBITDA (as taxpayers and the administrative courts hold).

Existing position of taxpayers and administrative courts

In the view of taxpayers, mainly shared by the administrative courts, adoption of the higher limit is supported by the literal wording of the current regulations, indicating that the limit does not apply to the surplus of debt financing costs in the portion not exceeding PLN 3 million. Thus, a contrario, the limit should apply only to the surplus above that amount. Despite favourable rulings by the courts, the position of the tax authorities on this issue remains unchanged—they continue to rely on the provisions of the Anti Tax Avoidance Directive, which are different.

Proposed changes in the Polish Deal

To avoid further disputes, an amendment proposed in the Polish Deal expressly states that the taxpayer may include among its revenue-earning costs the surplus of debt financing costs within the limit indicated by the value of 30% of the EBITDA generated during the tax year, or may claim the “safe harbour.” But the taxpayer may not combine these two limits and claim both at the same time. Thus the proponents regard as correct the position of the tax authorities discussed above in the ongoing dispute.

A more technical change is also proposed. It is aimed at increasing the transparency and ease of determining the amount of the EBITDA ratio. The proposal would include an algorithm in the CIT Act for calculating this ratio.

Proposed algorithm:

The amount of the surplus will thus be calculated using the ratio resulting from the formula [(R ˗ I) ˗ (C ˗ Am ˗ Cdf)] × 30%, where:

R = total revenue from all sources subject to income tax

I = interest income

C = total revenue-earning costs without reductions resulting from the limit on inclusion of debt financing costs among such costs (CIT Act Art. 15c)

Am = amortization deductions recognized in the tax year among revenue-earning costs

Cdf = costs of debt financing recognized in the tax year among revenue-earning costs not reflected in the initial value of fixed assets or intangibles prior to the reduction resulting from the limit on inclusion of debt financing costs among such costs (CIT Act Art. 15c).

It should be pointed out that the foregoing does not contain an exclusion within the formula for the limitation on inclusion among revenue-earning costs of certain intangible services acquired from related entities, currently set forth in CIT Act Art. 15e. This is because, in light of inclusion in the Polish Deal of the latest concept for a minimum tax on big corporations, Art. 15e is to be repealed, as the amount of the costs that were excluded from deductible revenue-earning costs under that provision would, under the new Art. 24ca, become the basis for taxation with the alternative minimum tax.

Further changes—expanded catalogue of exclusions

Another change that introduced by the Polish Deal in relation to the restriction on debt financing costs should also be mentioned. This is a change adding to the catalogue of exclusions from revenue-earning costs set forth in Art. 16(1) of the CIT Act a provision (new point 13f) indicating that the costs of debt financing obtained from a related entity would not constitute revenue-earning costs at all in the portion earmarked directly or indirectly for capital transactions, in particular acquisition or taking up of shares, acquisition of the totality of rights and obligations in a partnership (without legal personality), surcharges on shares, increase of share capital, or buyout of the company’s own shares for the purpose of redeeming them.

According to the proponents, this change is intended to combat situations where taxable income is reduced within groups of related entities as a result of conversion of debt financing (e.g. in the form of a loan) into equity financing. This results in erosion of the tax base, because the interest on debt financing reduces the income of the taxpayer receiving the financing, but the borrower also does not report income on this basis as a result of reclassification as equity financing.

The regulations have not yet entered into force. Parliamentary work on the bill is ongoing, so the final wording of the proposed changes is not yet known. If further positions and proposals arise, we will track the situation and inform you of the changes.

As regards the VAT Act, the proposed changes to the regulations concern:

  1. The possibility of joint settlements by several taxpayers in so-called VAT groups
  2. Changes in the form of options for taxing financial services
  3. Promotion of non-cash transactions in Poland, introducing a quick VAT refund for non-cash taxpayers
  4. Changes to binding rate information.

Today we describe the changes regarding VAT Groups. 

VAT group

Pursuant to the existing regulations in force in Poland, unlike corporate income tax payers, VAT payers cannot settle their accounts jointly, regardless of the financial, economic and organizational relations between them. As a rule, Polish VAT payers settle this tax individually, and each of them separately submits VAT SAF-T files (JPK_VAT), while transactions between related entities are documented with invoices. The Polish Deal bill would introduce into the VAT Act of 11 March 2004 the possibility of joint accounting by several taxpayers within so-called VAT groups.

Who can be part of a VAT group?

Under the proposal, a VAT group could be created by taxpayers:

  1. Established in Poland, or
  2. Not established in Poland, to the extent that they conduct business activity in Poland through a branch located in Poland.

Pursuant to the Act on Rules for Participation of Foreign Undertakings and Other Foreign Persons in Economic Turnover in the Territory of the Republic of Poland of 6 March 2018, regulating the issue of establishing branches, a branch is a separate and organizationally independent part of economic activity, performed by an undertaking outside the undertaking’s registered office or principal place of business.

As the act does not prohibit the establishment of branches by foreign entities from outside the EU (on the basis of reciprocity), it should be assumed that such branches can function and could also be part of a VAT group.

In our view, this does not present any difficulties, and it is obvious that in most if not all cases such a branch would meet the requirements specified in the definition of a “fixed establishment” under Art. 11 of Council Implementing Regulation (EU) No 282/2011 of 15 March 2011 laying down implementing measures for Directive 2006/112/EC on the common system of value added tax.

In addition to the aforementioned conditions, a VAT group could be created by entities meeting additional conditions, namely that they are related:

  • Financially, i.e. if one of the entities forming the VAT group has a direct, more than 50% share in the share capital of the other entities
  • Economically, meaning that
    • The main activity of members of the VAT group is of the same nature
    • The types of activities carried out by members of the VAT group are complementary and interdependent, or
    • A member of the VAT group carries out activities wholly or largely used by other members of the VAT group; and also
  • Organizationally, that is:
    • Legally or in fact, directly or indirectly, they are under common management, or
    • They organize their activities wholly or partially in concert.

The conditions for the existence of financial, economic and organizational links between members of a VAT group would have to be met continuously for the period in which the group has the status of a VAT payer.

Another requirement is that these entities have their headquarters in Poland. Taxpayers who do not meet this criterion could also establish it to the extent that they run a business via a branch located in Poland.

The amendment to the regulations also introduces certain restrictions, such as:

  • One entity may be a member of only one VAT group.
  • A VAT group cannot be a member of another VAT group.
  • The VAT group may not be extended to include other entities, nor may it be reduced by removal of any of its entities.

VAT group—what should be done to establish it?

  1. Enter into a written agreement on establishment of a VAT group, containing at least:
    • The name of the VAT group with the additional indication “VAT group” or “GV”
    • Identification data of the taxpayers forming the VAT group, including data on the branch in the case of a taxpayer not established in Poland, and the amount of the share capital of each of the taxpayers
    • Designation of a representative of the VAT group, appointed from among its members
    • Identification data of the shareholders and the amount of their share in the capital of the taxpayers forming the VAT group, holding at least 50% of the shares in the share capital of the taxpayers
    • Indication of the period for which the VAT group is established, not shorter than 3 years (although the agreement could be extended).
  2. Submit a registration application (VAT-R) and the agreement to the tax office for the representative of the VAT group.

Benefits of introducing VAT groups

Generally, introduction of the possibility of joint VAT accounting should be considered a step in the right direction. Because only the group would be the taxpayer, intra-group transactions would not be subject to taxation, invoicing or the split-payment mechanism. In addition, the VAT group would submit one VAT declaration and would need only one bank account to process VAT returns and accept payments.

A disadvantage of this solution is undoubtedly the joint and several liability of the group members for its obligations during the period when the VAT group is the taxpayer and after the group loses this status. In addition, despite elimination of some obligations, new ones have been introduced, such as allocating the proportion of intra-group VAT to taxed and untaxed activities. Additionally, matters are complicated by the fact that a group could be required to establish a proportion within the group and another proportion for the group as a whole. The group would also have to keep records of transactions within it.

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