On July 26, 2021, the government presented a draft law introducing extensive changes to the tax and social security laws, which until August 30, 2021 will be the subject of public consultations conducted by the Ministry of Finance. These changes were partially announced earlier this year and are referred to as the "Polish Deal". Below, we present a list of those proposals that may be of particular importance from the perspective of employers and individuals.
1. Change of tax-free amount and tax threshold
The tax-free amount of PLN 30,000 will be introduced for all taxpayers who reconcile their income according to the progression. Currently, the tax-free amount is progressively decreasing and no longer applies to individuals with an income above PLN 127,000 per year.
The 32% rate will apply to income over PLN 120,000 per year. Currently, it is PLN 85,528.
2. Elimination of the possibility of deducting health insurance contribution from tax
Currently, the majority of health insurance contributions is deductible from income tax (the contribution of 9% of the assessment basis is tax deductible in the amount of 7.75% of the assessment basis, therefore 1.25% of the tax base is covered from the income of a given individual). As a result of the planned changes, the health insurance contributions will no longer be deductible from income tax. This change will affect all individuals who are obliged to pay health insurance contributions (to include employees, contractors, entrepreneurs, but also pensioners). In the case of employees, a special relief has been introduced to eliminate the negative impact of the change. However, the relief will only apply to employees with annual employment income up to PLN 133,692. For those who will not be able to apply this relief, the change will increase the tax burden.
The potential burdens for 2022 in the case of full-time employees and taxpayers running a business taxed with 19% flat tax can be calculated using our calculator.
How to use the calculator?
Enter Gross Annual Revenue resulting from employment (Polish abbreviation for employment is “UoP”) to see changes in the annual net salary for contract of employment (Umowa o Pracę)
Enter Annual income from business activity (revenue decreased by tax deductible costs) to see changes in the annual net salary for economic activity (“B2B”).
Before you use the calculator, please be aware that it is only a projection of the net salary prepared under certain assumptions. It was prepared on the basis of the assumptions of the "Polish Deal" program and takes into account the solutions described in the draft amendments to tax / insurance acts made available for consultation on July 26 this year. We encourage you to contact our experts in case of questions.
3. Changes in calculation of the health insurance contribution for sole entrepreneurs
The health insurance contribution for entrepreneurs who do not reconcile their business activity with lump-sum tax rates as a rule will be calculated based on the actual income. This, in principle, will increase the costs of obligatory burdens. The change in the rules of calculating the health insurance contribution will also affect new obligations in the scope of reporting contribution for entrepreneurs (annual calculation of the final contribution).
A comparison of the burdens for 2022 in the case of activities taxed with a flat tax can be made using our calculator.
4. Reduction of lump sum tax rates on recorded revenues
The project assumes a reduction of the lump sum tax rates on the recorded revenues for entrepreneurs performing specific medical professions to 14% and for some revenues related to the provision of indicated services in the IT area to 12% (previously 15%).
5. Health insurance contribution on remuneration of management board members
The draft introduces an obligation to pay health insurance contribution on remuneration of individuals appointed to perform functions under the act of appointment (so far such remuneration has not been subject to the obligation to pay health insurance premiums).
6. Additional burdens for employers in the case of illegal employment of employees or concealing the correct amount of income from work
The project introduces the solutions aimed to reduce the so-called shadow economy in terms of employing workers. It is to be achieved by assigning the income to the employer in connection with the illegal employment of an employee or failure to report the correct amount of income from the employment relationship, as well as introducing the full liability of the employer for tax and social security contributions (with the simultaneous exclusion of the employee's liability for these obligations).
7. Change in taxation rules for private use of company cars
New taxation rules for private use of company cars have been defined, which in the case of electric cars and cars with an engine power of up to 60 kW will lead to the recognition of income in the amount of PLN 250 per month. In the case of other cars, the revenue will amount to PLN 400 per month.
8. Rental income taxed only under lump sum taxation rules
Elimination of the possibility of reconciliation of the rental income at general rules (except when such income is obtained as a part of non-agricultural economic activity). Individual rental will be taxed only as a lump sum tax on recorded revenues (8.5% rate for revenues below PLN 100,000 per year and 12.5% on the surplus over PLN 100,000). After excluding the possibility of applying general rules, obtaining rental income will, in principle, result in the necessity to pay tax (with general rules, it is possible to take into account depreciation and deduct tax costs).
9. PIT relief for return from emigration
Taxpayers who transfer their place of residence to Poland and become Polish tax residents (after meeting certain conditions) will be able to deduct from tax an individually determined amount in 4 subsequent tax years following the selected base year. The amount of deduction will depend on the amount of tax in the base year and in the next 3 years.
10. Lump sum tax on foreign income for taxpayers with above-average level of assets (the so-called High net worth individuals)
The Polish Deal introduces a new form of lump-sum taxation on foreign income for individuals who decide to transfer their tax residence to Poland. As a result of choosing this form of taxation, foreign income will be taxed with a fixed amount of tax regardless of the level of foreign income.
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