Polish Deal – a package of tax changes starting 2022

On November 16, 2021, the president signed a package of amendments to tax laws as part of the so-called of the "Polish Deal". Below we present a brief summary of the most important changes in the field of CIT, PIT and VAT related to the establishment of new regulations.

Individual selected issues we will describe in detail in additional tax alerts in the near future.

PIT/CIT

Abolition of the right to deduct health insurance contributions from PIT

In the light of the introduced changes, starting from the new year, the PIT taxpayer's right to deduct the amount of the health insurance contribution from the personal income tax or the flat rate income tax on certain income earned by individuals will be abolished. At the same time, the amount of the health insurance contribution paid by entrepreneurs subject to the 19% flat tax will be determined in proportion to the income earned and will amount to 4.9% (until the end of 2021, the health insurance premium for entrepreneurs is set at a fixed amount, regardless of the income earned).

It is worth adding that the dates of settling health and social contributions and PIT advances have been standardized - until the 20th day of the month following the month for which advances and contributions were calculated.

Increasing the tax-free allowance and the second tax threshold

Pursuant to the amendment to the PIT Act, the tax-free allowance will be increased from PLN 3,091 to PLN 30,000. All taxpayers taxed according to the tax scale will be able to take advantage of the tax-free allowance.

Moreover, the tax threshold will be increased to PLN 120,000, beyond which the higher PIT rate of 32% will apply.

A relief for the middle class

In 2022, a tax relief is to enter into force, the purpose of which is to offset the effects of the lack of the right to deduct the health insurance contribution from the tax. This relief will be available to employees and entrepreneurs running a sole proprietorship who settle income tax according to general rules, i.e. based on the tax scale.

The right to the relief will be available to taxpayers who will earn revenues in the amount between PLN 68,412 and PLN 133,692 in the tax year.

Abolition of the right to account for depreciation charges on residential buildings

In the light of the amendment to the income tax Acts, the right of a PIT and CIT taxpayer to include depreciation write-offs on residential buildings, residential premises constituting a separate real estate, cooperative ownership right to a dwelling and the right to a single-family house in a housing cooperative, credited funds as tax deductible costs fixed assets and intangible assets is to be abolished.

However, in accordance with the transitional provisions to the amending act, the current rules may be applied by the end of 2022, i.e. taxpayers will be able to include depreciation write-offs on buildings and residential premises as tax deductible costs.

Car leasing

In accordance with the adopted regulations, the rules for purchasing a leased car to private property will change. From January 2022, an entrepreneur who wants to buy a car and then transfer it to private property will be required to pay both income tax and VAT.

Tax on shifted income

The amendment to the CIT Act provides that a company that pays foreign receivables to a related entity, e.g. for intangible services, license fees or debt financing costs, may be required to recognize revenues in this respect in Poland. The tax on shifted income is expected to be 19%.

The passed-on income will be deemed to be the costs specified in the CIT Act, incurred directly or indirectly for the benefit of an entity related to the company and constituting the receivable of that entity, if they accounted for at least 50% of the value of the revenues obtained by that entity, determined in accordance with the provisions on income tax or in accordance with the accounting regulations.

Hidden dividend

A new category of expenses which should be excluded from tax deductible costs will be introduced to the CIT Act. Expenses incurred by the company in connection with the activity performed by an entity related to the company or its partner / shareholder, in the event that incurring this cost constitutes a hidden dividend, will be excluded from tax deductible costs. It is planned that the regulations in this area are to enter into force in 2023.

The purpose of the provision is to limit the artificial generation of tax deductible costs that do not formally constitute dividends. The above limitation shall not apply to all types of costs - according to the introduced regulations, hidden dividends are inter alia, expenses which amount or timing in any way depends on the taxpayer's profit or the amount of this profit.

Preferences for the holding company

One of the changes provided for in the Polish Order will be the introduction of a holding company to the Polish legal system. A holding company should be understood as a limited liability company or a joint stock company, holding, on the basis of title, at least 10% of shares (stocks) in the capital of a subsidiary for a continuous period of at least 1 year.

The new institution provides for tax preferences for the holding company in the form of a tax-free sale of shares in subsidiaries, as well as an exemption from 95% of the value of the dividend received. In order to apply the exemption, the taxpayer will have to meet the indicated requirements, including the necessity for the holding company to carry out genuine economic activity.

Minimum CIT

The amendment to the CIT Act introduces the so-called minimum CIT. This tax is to apply to Polish tax resident companies that incur losses from revenues other than capital gains in the event that they have a low (1%) operating profitability ratio resulting from the ratio of revenues to costs.

The minimum CIT will also apply to non-resident establishments to the extent to which the generated revenues and losses are related to the operation of this establishment.

The taxable base is to be the sum of the revenues and costs specified in the Act, which include, inter alia, an amount corresponding to 4% of the value of revenues generated in the tax year from a source other than capital gains, the value of “excessive” debt financing costs incurred on behalf of related entities. The tax rate will be 10% of the above-mentioned base.

Flat rate reduction for certain professions

The amendment to the Lump-sum Income Tax Act provides for the reduction of the flat rate on revenues for persons performing specific medical professions to 14% and for some revenues related to the provision of specific IT services to 12%.

PIT relief for taxpayers returning from emigration

In accordance with the approved changes, the income of individuals who transfer their place of residence to Poland and become Polish tax residents (meeting certain conditions) will be exempt from taxation up to the amount of PLN 85,528. In the case of taxpayers who settle according to the tax scale, who can additionally use the tax-free amount of PLN 30,000, the amount of tax-exempt revenues will total PLN 115,528.

The exemption for taxpayers returning from abroad will be granted in four consecutive tax years, counting from the beginning of the year in which the taxpayer moved his place of residence to Poland, or from the beginning of the next year.

Flat rate on foreign revenues for taxpayers with an above-average level of assets

A new form of flat rate taxation of foreign income has been introduced for people who decide to transfer their tax residence to Poland.

Choosing this form of income taxation will result in the possibility of settling with a fixed flat rate tax regardless of the amount of foreign income achieved in the amount of PLN 200,000 PLN per year.

Tax credits for robotization and prototype

The Polish Deal is to introduce the so-called discount on the prototype. This relief applies to trial production and the introduction of a new product to the market.

According to the assumptions of this relief, taxpayers will be entitled to deduct 30% of the sum of the costs of: trial production of a new product and its introduction to the market (up to 10% of income from "other sources" / business activity).

Regardless of the above, the so-called robotization relief will be introduced. This relief will consist in an additional deduction from the tax base of 50% of eligible costs related to investments for robotization. However, the amount to be deducted may not exceed the value of the income earned by the taxpayer in the tax year from income other than income from capital gains.

Importantly, this tax preference will only apply to new devices. The planned duration of the relief is five years, counting from the beginning of 2022 to the end of 2026.

VAT

Establishment of a VAT Group

From January 1, 2022, a VAT group may be created by taxpayers related financially, economically and organizationally:

1. established in the territory of the country or
2. not established in the territory of Poland to the extent that they conduct business activity in the territory of Poland through a branch located in Poland.

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

The creation of a VAT group means that the supplies of goods and the provision of services by entities belonging to this group will not constitute activities subject to VAT.

Option to tax financial services

As of 2022, the taxpayer will be able to choose VAT on the financial services he provides. The proposed amendment is based on the option to tax financial services that are provided exclusively to taxpayers. Financial services provided to retail clients (non-taxable natural persons) will continue to be obligatorily exempt from tax.

According to the draft amendment, the taxpayer will be able to opt out of VAT exemption for certain financial services provided to taxpayers, and choose to tax them under appropriate conditions.

Fast VAT refund for the so-called cashless taxpayers

From January 1, 2022, a tax preference will be introduced, consisting of VAT refunds within 15 days from the date on which the deadline for submitting the declaration / correction of the declaration has expired.

The indicated tax preference for a quick VAT refund would apply to taxpayers who jointly meet the criteria for a certain level of sales recorded using online cash registers, a specific level of payments made through payment instruments and the amount of the total value of sales recorded using online cash registers.

Changes to the WIS and the investment agreement

According to the approved amendment, the Director of the National Tax Information will refuse to issue the Binding Rate Information (WIS) if the scope of the application for the issuance of the WIS, on the date of submission of the application, is the subject of the concluded investment agreement.

The investment agreement (PI) is an institution to be introduced into the Polish Tax Ordinance, in the form of an agreement between the investor and the tax authority regarding the tax consequences of the planned investment in Poland.