Taxation of business operators under the “Polish Deal”

The Act of 29 October 2021 Amending the Personal Income Tax Act, the Corporate Income Tax Act and Certain Other Acts has been published in the Journal of Laws (Dz.U. 2021 item 2105). The new package of tax changes introduced as part of the “Polish Deal” will enter into force from 1 January 2022.
Author:
Katarzyna Adamowicz
Head of TAX Department
Monika Kanczkowska
Senior TAX Consultant

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.
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