In Poland the parliament (Sejm) passed the “Polish deal” on October 29, 2021, paving way for amendments relating to health insurance contributions, Value Added Tax (“VAT”), income tax laws, and other tax legislation affecting corporations and individuals. The president has now signed the Polish deal and the new provisions will be enacted with an effective date of January 1, 2022.
The highlights of the “Polish Deal” are as follows:
Changes impacting business and employees
Tax and other changes
- Minimum tax (“CIT”) – A minimum tax on revenues of large corporations will be implemented at 0.4% of a company’s revenue (plus 10% in case of certain select spending, such as that on intangible assets and royalties). It will not be chargeable on group companies with at least 2 members (in which one of the companies has held directly 75% of total shares in share capital, throughout the year) subject to certain other conditions.
- The preferential tax regime for Holding companies – Exemption of up to 95% from CIT for holding companies receiving dividends from its subsidiaries will be granted whereas a full CIT exemption will be given for profits as a result of share transfer in subsidiaries.
- Account books - Account books now must be retained using computer programs. They also need to be submitted to tax authorities in structured form w.e.f. 2023.
- Tax-deductible costs – No cap on tax-deductible costs arising due to intangible services and license fees paid to related parties.
- Tax residence - a foreign company managed in Poland (whose ongoing matters are handled in an organized and continuous manner in Poland) will be considered as a tax resident. Earlier a Polish national being appointed as a top executive of a foreign company was factor relevant for tax residence.
- Beneficial Ownership – The beneficial owner of a company will be decided based upon the genuine economic activity test, which will not be similar to CFC rules. The nature and size of an entity’s business in the context of the payment received will be taken into account.
- Withholding tax – A threshold of PLN 2 million p.a. has been introduced, accordingly, withholding tax exemptions/ lower rates can apply only if payments to a single recipient do not exceed the threshold. Withholding will be done at a standard rate (19%/20%) (with some exceptions) upon crossing the threshold.
- Tax reliefs and deductions - The deal also provides for certain innovation relief measures to certain companies, allows CSR deductions (50% of eligible Corporate Social Responsibility [“CSR”] costs will be allowed as deduction subject to certain conditions), etc.
- Transfer pricing - Extension of the deadline for the submission of the Local file to 14 days (previously 7 days) from the date of request by the tax authority and other simplified rules for making transfer price adjustments introduced.
- VAT groups – W.e.f. July 2022 group VAT reporting will be made mandatory for companies within the VAT group.
- VAT on financial transactions – VAT is made chargeable on a financial transaction.
- VAT refund for non-cash taxpayers – A quick VAT refund in 15 days is introduced subject to certain conditions. Several conditions, such as the amount for carrying forward taxpayer’s excess tax (to the following reporting period as stated in the VAT declaration) should be less than PLN 3,000, apply.
Payroll and social security changes
- Health insurance premiums – Employees can no longer claim deduction from tax for the health insurance premiums paid.
- Change in deadline for reporting of social security contributions - Health insurance and social security contributions to be paid on 20 of each month. The ZUS DRA return had to be filed by 15 of each month with ZUS Zaklad Ubezpieczen Spolecznych – Payment is made at the time of filing the return.
Changes impacting individuals
- Personal income-tax-free allowance - Increased tax-free income from PLN 8,000 to PLN 30,000.
- The income tax threshold for entering the highest personal income tax bracket - raised from PLN 85,528 to PLN 120,000 p.a. (tax rates however remain unchanged)
- Working middle-class tax exemption – Exemption granted to those taxpayers whose income totals from PLN 68,412 up to PLN 133,692 p.a. subject to certain conditions.
Implications:
- Due to the non-deductibility of health insurance contributions of employees, there will be an increase in the assessment base for all those contributing, by around 7.75%.
- The minimum tax will impact businesses that post losses or those with income of less than 1% of operating revenue.