Personal income tax (PIT)
Lower tax rate and increased deductible costs
In October 2019 the amended PIT provisions entered into force. Polish legislator reduced the first tax bracket from 18% to 17% and increased the tax deductible costs as well as changed the calculation of the tax-free amount.
Exemption from PIT for persons under 26 years of age
According to the amendment to the PIT Act, which was introduced on 1 August 2019, income earned by individuals under age of 26 is exempt from PIT. The exemption is limited and may apply to revenues not exceeding the first threshold of the tax scale, which is PLN 85,528.
The exemption applies to the income from employment and mandate/freelance contracts. As of 2021 it applies also for income from graduate internship and student internship. The exemption does not apply to the persons earning income from other titles (e.g. business activity, sale of the shares), as well as income taxed with a flat rate tax.
A surplus of over PLN 85,528 is subject to taxation on general terms, using a progressive tax scale (17% and 32%).
It is important to note that this exemption is calculated automatically, however, the taxpayer may require the tax remitter (e.g. employer) to withhold PIT on a monthly basis.
Increase in taxation of the income from work performed outside Poland – limitation of the abolition relief
The abolition relief applies to the taxpayers who are Polish tax residents and who obtain income in a state for which the appropriate method of avoiding double taxation is the proportional deduction method (so called “tax credit method”). The tax abolition relief used to lead to the situation where income obtained outside Poland was fully exempt from taxation in Poland, and its amount may only had a certain impact on the tax rate paid on the Polish sourced income.
The adopted amendment introduces changes in the PIT law concerning the limitation of the application of the abolition relief which may result in a significant increase in taxation for the Polish tax residents who obtain income outside Poland. According to the PIT act, as of 2021 the application of the relief is limited to an amount not exceeding PLN 1360. However, this limitation does not apply to people who work offshore, i.e. seafarers.
Changes in the lump sum taxation rules
Lump sum tax on registered revenues is a simplified form of income taxation. The tax base is the revenue, so the costs are not deductible. However, up to 2020, only a small group of taxpayers could benefit from this form of taxation.
The Ministry of Finance wanted to increase the attractiveness of lump sum taxation and broaden the group of taxpayers who are able to use this solution.
The revenue limit entitling to apply the lump sum tax is raised. As of 2021 it amounts to EUR 2 million, instead of the previous EUR 250,000.
The lump sum tax rates were also reduced. Since 2021, the highest rate is 17% (instead of 20%).
Importantly, from 2021, in some cases, a lump sum on revenues can also be paid by landlords as a part of business activity. The lump sum for most rental services and accommodation-related services has been unified (8.5% and 12% - when revenues exceed PLN 100,000).
Changes in the taxation of income of partners in limited partnerships
The changes to the regulations provide that some of the limited partnerships will become subject to CIT and therefore, income received by partners will be classified as income from the profits of legal persons (similarly to dividends) and thus taxed according to the flat PIT rate of 19%. The introduced change will also affect taxation with the solidarity contribution, which the partners should not have to pay, even if their profits from participation in the partnership exceed PLN 1,000,000.