The Polish Deal has given sleepless nights to millions of Poles. Both the statistical citizen working on a regular basis, small and large entrepreneurs, as well as companies. The latter are directly affected by the changes, as well as by significant modifications in the taxation of employees and, consequently, their new obligations as payers.

Accountants and tax advisors have spent hundreds of hours trying to get through the huge number of changes in regulations introduced on 1 January this year (the biggest in a dozen or so years), trying to figure out how to decipher and apply some of them, how to help their clients, and above all, what and whom to advise. In order to not only “lose as little as possible”, but – if possible – to gain from the Polish Order. It would be impossible to describe all the modifications in detail in this article, so we will selectively present a few of the most important ones.

Higher tax threshold and tax free amount

The Polish Deal is a significant increase in the tax free amount to PLN 30 thousand. Since January this year, there is also a higher tax threshold (the second threshold), which was raised from approximately 85 thousand zlotys to 120 thousand zlotys. This means that the tax base, not exceeding PLN 120 thousand, is subject to the 17% tax rate (at least for the time being, until the end of June this year, details below), and only the excess over this amount is subject to the 32% tax rate.

Changes in health contributions

The most economically perceptible change for PIT taxpayers (both entrepreneurs and full-time employees) undoubtedly comes from changes in the payment of health contributions. Many people believe that under the guise of a “health contribution”, we have been simply offered a tax increase, only under a different banner.

For entrepreneurs settling their accounts on general principles (scale), the health contribution amounts to 9% of income (as for employees on a full-time basis) and is not deductible from tax. On the other hand, entrepreneurs “on the rope” pay a health contribution in the amount of 4.9 per cent of income.

On the other hand, entrepreneurs settling in a lump sum have been charged with a contribution calculated on the basis of ratios, which effectively gives entrepreneurs (as at the moment of drafting this article) whose:

  • annual revenue is up to PLN 60,000 – a contribution of approximately PLN 335 per month;
  • whose annual revenue is between PLN 60,000 and 300,000 – a premium of ca. PLN 550 per month;
  • annual revenue is above 300 thousand zlotys – contribution of about 1 thousand zlotys per month.
Changes in the taxation of business activity with a “lump sum” (PIT)

Some changes have also been made to the lump sum tax on registered income for individuals. As of 2022, lump-sum rates were reduced for certain professions, e.g. (part of) the IT industry, which may apply a new rate of 12 percent. As the first months of this year showed, due to certain changes in lump-sum rates (which made it an exceptionally attractive form of taxation for certain industries), as well as the health contribution determined by a specific amount, many taxpayers decided to opt for this particular form of taxation. The lump-sum tax may indeed be an interesting alternative to the flat-rate or flat-rate taxation of business activity, however, the decision on the choice of this form should be preceded by a calculation of its profitability – it is important to remember the basic principle that governs the “lump-sum” – we tax income, not revenue (as a result, the amount of tax paid is not affected by tax-deductible costs).

Estonian CIT

This existing solution, however, has been heavily modified, thus becoming really interesting. After fulfilling a number of conditions (although probably for many of you these conditions in the existing state of affairs are already fulfilled) CIT taxpayers gained the possibility of choosing the so-called Estonian CIT – a specific model of taxation of their companies (being CIT taxpayers).

Important criteria include, among others, a minimum level of employment, the nature of the generated (predominant) income or a flat ownership structure (partners of CIT taxpayers wishing to use Estonian CIT must be exclusively natural persons, as well as a company wishing to use Estonian CIT may not have shares in other entities).

The good news is that choosing this form of taxation leads to not having to tax the income received on an ongoing basis. The assumption of this model is taxation only at the time of actual distribution of profits. Thus, the company does not pay income tax on its income on an ongoing basis (CIT advance payments), and the funds normally earmarked for this purpose may be reinvested.

What is more, the mere temporary postponement of taxation is not everything. The effective taxation in this model is significantly lower than in the standard CIT taxation model. In the case of CIT taxpayers, whose annual revenues do not exceed EUR 2 million – the effective/final tax rate (after taxing the company and distributing the profit to the shareholder) should not exceed 20%, while in the case of higher revenues, exceeding the aforementioned ceiling, the effective tax rate should not exceed 25%.

Changes already on the horizon…

It has only been three full months since the provisions of the Polish Order came into force, and already they have been subject to many individual, ad hoc patches, lots of amendments, and finally the whole package of changes to the Polish Order, which is to come into force at the beginning of July this year, is already under way.  As at the moment of drafting this article, the new regulations are only in the draft stage, so we will only hint at a few key changes that may appear (with their final shape still to come). On 24 March this year a draft bill was published, presented as an element of the anti-inflation shield, which to a large extent is nothing more than an amendment to the Polish Order, and this in more than 30 pages…

Among the announced changes, the following are worth mentioning

  • reduction of the lower rate of the PIT tax scale from 17 to 12 per cent (while retaining the amended tax thresholds and tax-free amount);
  • liquidation of the mechanism of “relief for the middle class”;
  • possibility to deduct a part of health premiums from the tax base – entrepreneurs could deduct paid health premiums in the amount of:
    – half of the premiums paid – those settling “lump sum”;
    – up to PLN 8.7 thousand annually – those settling with the 19 per cent flat rate PIT;
    – 0 PLN annually – those settling with the 12-32 per cent PIT scale.
  • inclusion – as of 1 January 2023 – inclusion – as from 1 January 2023 – of general partners of limited joint-stock partnerships in compulsory social and health insurance – analogically to partners of, for example, limited partnerships.

The modifications announced are to affect significant changes that have only just been implemented. At the time of writing, the draft was under consultation and the changes to the Polish Order are scheduled to come into force on 1 July this year.

The above unfortunately shows that tax lawmaking – looking at the number of ad hoc patches that had to be introduced in the first months of the Polish Order – is not preceded by sufficiently long consultations and analyses. This, in turn, results in a lack of certainty for citizens as to the law being made, as well as the inability to plan long-term activities for fear of unstable regulations. We are therefore waiting for the next set of changes, which will have to be faced by you as taxpayers and us as advisors.

The article was published in Think Mice magazine –