Polish Deal: significant tax changes coming soon
Tax alert (11/2021) | 19 May 2021
On 15 May 2021, the Government presented assumptions underlying socio-economic measures planned for the coming years. An important section of this Polish Deal paper is devoted to tax proposals, some of which shall affect entities operating on the Polish market and costs of their operations.
Although the Polish Deal includes tax proposals addressed to all taxpayer groups, separate solutions are provided for small, medium and large enterprises, as well as to taxpayers who are not entrepreneurs. The planned changes in the Polish tax regulations fall into several categories:
Changes in taxation and other levies imposed on individuals
The changes planned in this respect include:
- An increase in the personal tax free allowance for “every working individual” to PLN 30,000 per year (currently the tax free amount depends on the income level: it is PLN 3,089 per annum for income between PLN 13,000 to PLN 85,000 and decreases to PLN 0 for annual income in excess of PLN 127,000). The new personal tax free allowance shall include pensions (which means the pension up to PLN 2,500 per month shall be tax exempt) and income generated by self- employed persons within their business activity (in case they are taxable under general progressive tax regime).
- At the same time, a radical change is planned regarding healthcare contributions, which will not be tax-deductible any longer (whereas currently major part of contributions, i.e. 7,75% out of 9 % of healthcare contribution is tax deductible). Moreover, the same principle of calculation of healthcare contributions will apply to self -employed persons as to employees, i.e. the healthcare contributions shall be proportional to the base, which depends on the actually generated income). Thus, tax burdens shall grow, as non-deductibility of the healthcare contributions means actually that tax on each PLN 1,000 of gross income shall increase by PLN 67 (according to initial estimates, for gross income higher than PLN 6,000 per month, the related charges would exceed the benefits generated by the personal tax free allowance increase).
- Tax allowance for the middle class defined in the Polish Deal as individuals working on employment contracts, whose annual income from PLN 70,000 to PLN 130,000. Due to introduction of this tax allowance, the reform should be tax neutral employees whose monthly income amounts from PLN 6,000 to PLN 10,000.
- An increase in the higher tax threshold that divides the income subject to 17 % tax rate from the higher one (32%) from PLN 85,528 to PLN 120,000. This amendment may partly offset charges resulting from the healthcare premium reform for employment contract holders and self- employed persons who generate such income taxable on general terms.
- PIT allowance for repariatants: under the Polish Deal, Polish nationals returning from emigration shall be permitted to reduce their taxable base by PLN 50,000 in 2022 (and in the following year). Further, a fixed lump sum taxation on foreign income will be introduced in case of non-residents who decide to move their tax residence to Poland.
- Capital return programme is a special deal for Poles who keep their assets or conceal income abroad. Under the programme, they will be able to return to Poland with their assets and income without a risk of being prosecuted for tax avoidance.
- Support for those hiring innovative employees in the form of an option to deduct their salaries from CIT.
- Passing the employee shareholding act, among others aimed at an increase in investment opportunities and availability of capital sources for business development, as well as at performance improvement resulting from growing loyalty and motivation of employees.
Announcing “The Development Decade” as a form of material support for entrepreneurs
The forms of support planned in this respect include:
- Tax relief for prototypes to be available for small enterprises and based on the solution already introduced in France, which allows deduction of prototype development costs that do not qualify as R&D expenses.
- Tax relief for manufacturing automation and robotisation available to medium-sized enterprises and allowing to classify costs of acquiring and implementing manufacturing process automation as tax-deductible expenses.
- Permitting medium-sized enterprises to use R&D tax deduction and IP Box simultaneously.
- Support for small and medium enterprises and public institutions willing to implement cloud-based technologies shall be available under the programme called “Od Polski stacjonarnej do Polski chmurowej” (From the Ground to the Cloud).
Announced changes to general tax regulations
The changes planned in this respect include:
- Organising within the structures of the Ministry of Finance an Investor Service Centre (for strategic entities) and introducing Interpretation 590, i.e. certainty of taxation in the first years of investment.
- Introducing simplified transfer pricing settlement rules for large enterprises (holdings) that want to invest in Poland.
- Introducing VAT Groups in Poland.
Among others, the following changes are planned addressed to medium and small enterprises:
- Increased availability of Estonian CIT to medium-sized enterprises.
- Consolidation allowance as a new CIT allowance to serve as an incentive for small enterprises to increase their competitive advantage through fast consolidation.
- Allowance for IPO to support medium-sized enterprises interested in going public to finance further growth.
- Tax support of expansion to foreign marketsf for medium-sized enterprises.
- Easier access to Venture Capital for medium-sized enterprises in the form of eliminating the current tax barriers and implementing proven solutions, e.g. those used in France and the U.K.
The above proposals are of very general nature. Appropriate regulations implementing the initiatives announced on 15 May 2021 are being drafted now or will be drafted in the upcoming months. It could be expected that the final version of the legislation implementing the Polish Deal will be known in Q4 2021 or late Q3, 2021.
Importantly, the announced changes may considerably affect costs of running a business in Poland, as well as business and investment plans. Therefore, monitoring the progress of work on the Polish Deal shall be of crucial importance.