"Polish Deal": summary of the most important changes in taxes

On Tuesday, November 18, 2021, the president signed the law on tax changes, which is provided for in the so-called "Polish Deal ". Therefore, we are sure that from January 1, 2022 we will all live in the new tax reality. What's changing? What do entrepreneurs need to prepare for? How will everything look like in practice? Below we present the main assumptions of the ""Polish Deal " tax program.
Author:
KR Group

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.
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