5 minute read 16 Nov 2021
“Fit for 55" package - legislative changes to the Emissions Trading System (EU ETS)

Are you ready for a tax revolution? The Polish Deal will not leave anyone unaffected

By EY Poland

Multidisciplinary professional services organization - Assurance, Consulting, Tax, Strategy & Transactions

5 minute read 16 Nov 2021

President signed the Polish Deal with the tax changes scheduled to take effect on 1 January 2022.

The Polish Deal sets out many significant changes for entrepreneurs. One of the planned amendments revises the health insurance contribution payable by sole traders – from now on it will be determined by the tax regime of choice. Another revolutionary change is the tax imposed on revenues of large corporations. Revised will also be the deadlines for claiming tax reliefs, the Estonian CIT and the tax residence criteria. Below we provide a summary of the key changes affecting entrepreneurs. 

  • Changes in PIT and health insurance contributions

    • Health insurance contributions no longer deductible from personal income tax (which results in an effective 7.75% increase in the assessment base for all those paying the contribution):

    - entrepreneurs paying their PIT in line with the general rules – 9%;

     - entrepreneurs paying a flat rate PIT – 4.9%;

    - entrepreneurs paying a flat rate PIT for specified occupations – the contribution will be determined by the amount of revenue, namely the monthly health insurance assessment base will be 60% of average salary for revenue totalling up to PLN 60,000, 100% of average salary for revenue of up to PLN 300,000 and 180% of average salary for revenue in excess of PLN 300,000;  

    - entrepreneurs paying a fixed amount of PIT – 9% of minimum wages.

    • Consistent deadlines for reporting health insurance and social security contributions – the deadline has been extended until the 20th day of each month.
    • New tax bands with two thresholds: 17% up to PLN 120,000 and 32% above this amount.
    • The fixed tax-free amount will be increased to PLN 30,000 (not applicable to entrepreneurs taxable at a flat 19% tax rate).
    • Tax relief for the so-called middle class tax relief for taxpayers whose annual revenue totals from PLN 68,412 up to PLN 133,692; the relief will be determined by inter alia the level of a taxpayer’s salary and will be computed using two formulas provided in the law; the relief will also be available to entrepreneurs (sole traders), the eligibility criterion in this case being the amount of income (revenues less business activity costs, social security contributions excluded) within the range from PLN 68,412 to PLN 133,692. This relief is expected to mitigate the adverse effects of denial of the right to deduct the health insurance contribution from the tax due.
    • A lower flat PIT rate for IT specialists (12% instead of 15%).
    • Changes in the taxation of company cars - the key criterion under the revised law is to be the engine power, not capacity; the fixed allowance for cars of up to 60kW will be PLN 250, and PLN 400 for cars with higher power engines. Buying a company car will pay off less, as income tax and VAT will be due on the transaction.  
    • Account books required to be kept using computer programs and sent to the tax office in structured form; this obligation is not expected to come into force until 1 January 2023.
    • Repatriation reliefthis relief is to take the form of a tax exemption available to every taxpayer who did not have his/ her tax residence in Poland over at least 3 years in the past and who chooses to relocate it back to Poland. 
    The higher health insurance contribution is one of the farthest-reaching changes under the Polish Deal, as it will significantly reduce disposable incomes of those earning higher salaries. An interesting thing is that the additional charge will be more painful for employees than sole traders; the latter are facing an increase in the health insurance contribution to 4.9%, while employees will pay 9%. This leads to two conclusions – first, both employers and sole traders should be more willing to consider taking advantage of all reliefs and deductions available under the law to offset the rise. The lawmaker encourages taxpayers to claim higher tax deductible costs on account of copyright work, R&D relief, robotisation relief and other forms of preferential treatment which many taxpayers have viewed as redundant options so far. Second, the post-pandemic environment has disrupted working models, and now it’s much more reasonable to consider shifting to cooperation agreements to replace regular employment contracts. This is driven by the fact that all the three criteria typical of the employment relationship, that is the employer’s guidance, the time and the place of carrying out employment duties have become of secondary importance in many cases. Setting up a sole trader’s business in place of the employment relationship has become more natural and may also offer a significant increase in take-home pay.
    Marek Jarocki
    Partner at EY Poland, Leader of People Advisory Services
  • VAT changes

    • VAT groups - taxpayers within VAT groups to report tax as a group. The law governing VAT groups is scheduled to take effect on 1 July 2022.
    • VAT chargeable on financial transactions.
    • Changes to the binding rate information (WIS); this involves a new agreement called an investor's agreement, which sets out the tax implications of an investor’s contemplated investment project in Poland.
    • A quick VAT refund for non-cash taxpayers; in the cases specified in the act, a VAT refund would be made within 15 days. This solution will be subject to a number of conditions, including the requirement that the taxpayer’s excess tax to be carried forward to the following reporting period as stated in the VAT declaration should not exceed PLN 3,000.
    The introduction of VAT groups and chargeability of VAT on financial transactions are changes that should be considered favourable. This solution will benefit large entities, in particular financial sector companies.
    Sławomir Czajka
    EY Poland, Indirect Tax, Leader of Global Trade practice at EY Poland
  • Tax reliefs for entrepreneurs

    • robotization relief;
    • changes in R&D and IP Box allowances;
    • relief for innovative employees;
    • consolidation relief.
    The new allowances are designed to complement the forms of support offered under the existing solutions and extend the assistance provided to taxpayers. Pro-development activities are the area that has definitely been getting the most support through fiscal instruments in recent years and it’s good to see that the lawmaker seeks to go beyond what has been offered so far on the way to boost innovative economy
    Aleksander Sipior
    Manager at EY Poland, Business Tax Advisory
  • CIT changes

    • Article 15e repealed, which means that tax deductible costs arising from the so-called intangible services and license fees to related parties are no longer capped.
    • Requirement to keep account books using computer programs and to transmit them to tax authorities in structured form; this requirement is not expected to enter into force until 1 January 2023.
    • Exit tax changes are designed to clarify the point at which “an asset is transferred” outside the territory of Poland.
    • Changes affecting the beneficial owner definition – the genuine economic activity test will not be modelled on the CFC rules but will take into account the nature and size of an entity’s business in the context of the payment received.
    • Tax residence now clarified – a Polish tax resident will also be a foreign company managed in the territory of Poland, which means that its ongoing matters are handled here in an organised and continuous manner (this means giving up the concept of a foreign company reporting its tax in Poland on account of a Polish national appointed as a top executive).
    • Changes to the so-called hidden dividends, which affect their non-deductibility for tax purposes; the new rules are scheduled to take effect in 2023.
    • Changes affecting the "Estonian CIT” - the revenue threshold will be cancelled and eligible taxpayers will also include cooperatives, limited partnerships and limited joint stock partnerships, with entry and exit taxes to be lifted.  
    • WHT changes – the general rules governing WHT exemptions/ lower rates will apply only if payments to a single recipient do not exceed PLN 2m annually, and if they do, Polish remitters will be required to withhold tax at source at the standard rate (19%/ 20%) (with some exceptions), with subsequent WHT refund requests available. More on the new WHT regime to be found in the article entitled “The Polish Deal to Amend the WHT Regime”.
    • Preferential tax treatment for holdings – a CIT exemption for 95% of dividends a holding company receives from its subsidiaries and a full CIT exemption for profits from the transfer of shares/ shares of stock in subsidiaries.
    • A new tax on revenues of large corporations – it will correspond to 0.4% of a company’s revenue plus 10% of the so-called excessive costs. It is expected to affect capital companies and tax capital groups that report a loss in their annual tax returns or whose income-to-revenue share is 1% or less; the new tax will not be chargeable on companies in a group having at least two members in which one company has held directly – throughout the tax year -  75% of shares in share capital, capital of a joint stock company or a share of the other members of the group as long as the companies’ tax years are the same period and the share of aggregate incomes, established for the tax year, in their aggregate revenues is not higher than 1%. The minimum tax will not be due from energy companies, mining companies (those obtaining resources such as coal and copper) and companies providing international sea and/ or air transport services.
    The minimum tax on revenues of large corporations is a revolutionary change, it’s the first time that the lawmaker has chosen to impose tax on revenues earned by corporations. This may have a material impact on the operations of tax capital groups and their consolidation and reorganisation projects. It’s worth noting that taxpayers will have very little time to get ready for the change.
    Tomasz Rolewicz
    Partner at EY Poland, Tax, Business Tax Advisory
  • Real property changes

    • Depreciation write-downs of residential buildings and units no longer deductible for tax purposes.
    • No depreciation of residential units – with the planned change, they will neither be depreciable nor entered on the fixed assets record.  
    • Revenues from lease and sub-lease may be taxed solely under a flat rate tax scheme for specified occupations, if earned by a person other than a sole trader; this change is scheduled to take effect in 2023. 
  • Other changes

    • An Investment Agreement to be implemented.
    • Transfer pricing changes, including modification of the terms under which a taxpayer may adjust transfer prices or tax authorities may choose not to assess the taxpayer’s income (loss) in terms of the mark-up on low-value added service fees in controlled transactions; changes in accountability for failure to submit transfer pricing files; local transfer pricing files will not have to feature a benchmark analysis or an alternative benchmark analysis if an entrepreneur qualified as a micro- or small-business during the last tax year according to the definitions provided in the Entrepreneurs Act.
    • Changes affecting the beneficial owner definition – the genuine economic activity test will not be modelled on the CFC rules but will take into account the nature and size of an entity’s business in the light of the payment received.
    • Changes in debt financing, in particular through specifying the ratio for the purpose of calculating the maximum amount of debt financing costs that may be charged to the tax result in a given tax year (EBITDA ratio).
    • Changes in the rules governing admission of copies of tax residency certificates. 

With a few exceptions, the new Polish Deal regime is scheduled to enter into force on January 1, 2022.

The draft amending the tax laws is currently at the stage of public consultations, which will continue until August 30, 2021. The provisions are still subject to change. 

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Summary

The implementation of the Polish Deal means a true revolution for taxpayers. As there will be little time to prepare for the changes, it is advisable to contact EY experts to find out how the planned changes will affect your company and where to look for savings to offset the negative effect of the planned amendments.

About this article

By EY Poland

Multidisciplinary professional services organization - Assurance, Consulting, Tax, Strategy & Transactions