Personal income tax (PIT)
As of January 2022, a tax reform programme for the coming years, called the 'Polish Deal', was introduced into the Polish legal order. As of 1 July 2022, the amendments to the Polish Deal entered into force.
The Polish Deal set out the following significant changes for taxation of individuals.
Change to the tax brackets, the tax-free amount, and the tax scale
Changes of the Polish Deal were introduced in two stages:
- Polish New Deal 1.0 (in force from January 1, 2022) - increasing the tax-free amount to PLN 30,000, and thus the possibility of reducing the tax burden by PLN 5,100 per year (30 000 x 17%); Introducing a special mechanism for the calculation of monthly income tax advances - the so-called the middle-class relief;
- Polish New Deal 2.0 (from July 1, 2022) - the most important changes from the perspective of individual concerned elimination of middle-class relief; moreover the tax rate for income in the first tax threshold of the tax scale was reduced - from 17% to 12% (as a result of this change, a new tax reduction amount of PLN 3,600 (PLN 30,000 x 12%) appeared).
From January 2023, new rules apply to the application of the tax-free amount as well as submitting declarations and applications by taxpayers, including for exemption of the tax remitters from the obligation to collect advance payments.
Taxpayers can take advantage of wider possibilities to dispose of the free amount:
- it is possible to authorize all remitters to use the tax-free amount, including e.g. principals, and
- to divide the tax-reducing amount (1/12 = PLN 300) in a given month up to three tax remitters.
Moreover, as of 2023 regarding income derived for work performed on the territory of Poland under a foreign employment contract is the possibility of using tax-free amount on a monthly basis and reducing the monthly tax advance by tax-reducing amount (until 2022 the tax-free amount was included in the annual tax return calculation)
Unification of the deadline of filing the tax returns for taxpayers paying lump-sum tax
The deadline of filing the tax returns (so called PIT-28 forms) for taxpayers paying lump-sum tax was extended until the end of April of the year following the year for which the PIT-28 form will be filed. In consequence, the taxpayers filing their PIT-28 forms for 2022 will have more time for filing PIT-28 form (previously they only had time until the end of February of the year following the year for which the PIT-28 form should be filed). This change aligns the deadline for reconciliation of income subject to lump-sum tax with income subject to other tax regimes (such as flat tax or tax scale).
No tax deductibility of the health insurance contribution for taxpayers reconciling their income with the tax scale
The health insurance contribution (9%) is no longer deductible from income tax. Until 31 December 2021, 7.75% of the health insurance contribution base was tax deductible.
This change affects taxpayers who are required to pay the health insurance contributions.
New rules for the payment of health contributions by entrepreneurs
From 2022, the method of calculating the health insurance contributions for entrepreneurs has changed. Currently, the rules for paying the health insurance contributions depend on the method of taxation of business activity and are as follows:
- 4.9% of income for sole proprietorships taxed at flat rate (19%).
- 9% of income for sole proprietorships taxed according to the tax scale (12% and 32%). However, the health insurance contribution cannot be lower than PLN 314.10 per month (value for 2023). Please note that there is no amount of the maximum contribution indicated.
- A specific contribution depending on the amount of annual revenues for sole proprietorships taxed with a lump sum on recorded revenues, i.e.:
- For revenue up to PLN 60,000: PLN 376.16 per month.
- For revenue between PLN 60,000 and PLN 300,000: PLN 626.93 per month.
- For revenue exceeding PLN 300,000: PLN 1,128.48 per month.
Additionally, as a result of the changes introduced on 1 July 2022, entrepreneurs can deduct health insurance contributions under modified rules.
According to the changes, such possibility will be provided for entrepreneurs who tax their income (revenues) differently than according to the tax scale, viz:
- a flat rate tax
- a lump sum on registered revenue, or
- a tax card.
However, the amount of the deduction is to be limited, depending on the chosen form of taxation:
- Up to PLN 8,700 of deduction from income (or inclusion in tax deductible costs) for sole proprietorships taxed at flat rate (19%).
- Up to 50% of health insurance contributions for those entrepreneurs paying the lump-sum tax (deduction from the tax base).
- Up to 19% of health insurance contribution paid for those entrepreneurs using the tax card (deduction from tax).
Health insurance contributions for board members and proxies
The provisions of the Polish Deal introduce an obligation to pay health insurance contributions from the remuneration of persons appointed to perform functions under the act of appointment.
Until the end of 2021, such remuneration was not subject to the obligation to pay health insurance contributions.
Consequently, the board members and proxies are required to pay health insurance contributions at the rate of 9% with no tax deductibility. Accordingly, board members and proxies are entitled to healthcare benefits on the same basis as employees.
Change in tax reliefs:
Return to the preferential annual tax reconciliation of a single parent with a child
On 1 July 2022, the Polish Deal liquidated the tax relief for single parents introduced as of 1 January 2022 (i.e. deduction of PLN 1,500 per year from the PIT due). In place of the liquidated tax relief for single parents, the Polish Deal returned to the preferential annual tax reconciliation of a single parent (according to the rules in effect as of 31 December).
Moreover the annual limit of income earned by an adult child in education was increased. After the changes it amounts to PLN 16,061.28 (as 12 times the social pension).
As of July 1, 2023, the possibility of using the tax relief for disabled child is not limited by the income limit of the taxpayer or the taxpayer and his spouse. This change applies to income (revenue) earned as of January 1, 2023. Currently, the condition for using the deduction for disabled child is that the taxpayer's income does not exceed PLN 56,000 in the tax year, or that the income of the taxpayer and his spouse does not exceed PLN 112,000 in the tax year.
Relief for the return to Poland, relief for families 4+, and relief for working seniors
The tax allowances apply to the following sources of income:
- From employment relationship.
- Contracts of mandate.
- Non-agricultural business activities subject to taxation in accordance with the tax scale, flat-rate tax, or lump-sum tax on registered income.
- From the maternity benefit (expansion of the catalogue of income from 1 July 2022).
The total amount of income exempt from tax under the above-mentioned reliefs cannot exceed PLN 85,528 per year. This means that if a taxpayer is entitled to more than one tax relief, the maximum amount of revenue exempt from tax will be PLN 85,528.
The relief for the return to Poland
The relief for the return is aimed at taxpayers who live abroad and is intended to encourage them to come back to Poland.
The relief is available to a taxpayer who has moved their place of residence to Poland. It may be applied in four consecutive tax years, starting from the year in which the residence was transferred or in the following year. One of the conditions to take advantage of the tax relief is the fact that the taxpayer did not have their residence in the territory of Poland in the period covering three calendar years preceding the year in which they changed their place of residence in the territory of Poland.
Relief for families 4+
There is also a new relief for large families, i.e. for parents with at least four children. The relief is available to each parent separately if both meet the conditions for its application. This means that in case of a joint tax return, the amount of tax exemption may reach PLN 171,056 of revenue.
Relief for working seniors
The relief for working seniors applies to taxpayers (women over 60 and men over 65) who, despite gaining entitlement to a pension, will withdraw from receiving it and will still be active on the labour market. In order to be eligible for the tax relief, a senior must be covered by social insurance on account of their income.
The above reliefs may be claimed in the tax return (starting from the tax return for 2022) or during the tax year.
Tax reliefs for innovative and developing companies and individual entrepreneurs
The Polish Deal introduced new tax reliefs to stimulate the innovativeness of entrepreneurs, as well as modified the existing ones for research and development (R&D) activities, including the following:
- Increase of R&D additional deduction on R&D employment costs to 200%.
- Possibility of deduction R&D relief from IP Box tax base.
- New tax relief for innovative staff allowing cashless refund of unused R&D tax relief.
- New tax relief for prototypes, allowing for additional deduction of pilot series production up to 30% of incurred costs.
- New robotisation tax relief granting additional deduction of 50% of costs incurred on purchase of industrial robot.
- New tax relief for expansion with additional deduction of up to PLN 1 million incurred on increasing revenues of sale of goods.
- New tax reliefs on initial public offerings (IPOs) or corporate social responsibility (CSR).
Relief for renovation of monuments
According to the Polish Deal, as of 2022, the owners or co-owners of properties listed in the Register of Cultural Property are allowed to deduct from their income a portion of the expenses incurred for the renovation and purchase of the historic property.
In the case of expenses for purchase of a historic property, the amount of tax relief is calculated by multiplying the usable area of the historic building by PLN 500 (up to the limit of PLN 500,000). Additionally, the taxpayer may deduct 50% of the renovation costs (with no limit).
The condition for applying the relief is incurring renovation expenses for the purchased historic property.
The relief in this form will operate through 2022. Starting from 2023, its formula will change (as a result of the amendment of July 2022). Starting in 2023, it will be possible to deduct expenses incurred for renovation works. Moreover, these expenses will be deductible after the renovation is approved by the provincial conservator of monuments.
Changes in the joint reconciliation of spouses
The new regulations introduced under the Polish Deal will allow for the choice of joint tax reconciliation already in the year in which the marriage was concluded. This is a positive change in relation to the currently applicable regulations, which required the spouses to remain married throughout the entire year. Consequently, taxpayers will not have to be married for a whole year to reconcile their annual income together (also meeting the other required criteria).
This already applies to the 2021 tax return.
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.
Starting from 2022, the rates of lump-sum tax on registered income have been reduced.
For those in certain medical, architectural, engineering, or specialised design professions, the tax rate amounts to 14% (previously 17% or 15%). In turn, the tax rate for certain income related to the provision of designated services in the IT area is 12% (previously 15%).
Change in taxation of private rental income
The provisions of the Polish Deal eliminate the possibility of reconciliation of the rental income under general rules, i.e. according to the tax scale (except when such income is obtained as a part of non-agricultural economic activity). Rental income 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). This means that the total rental income will be taxed without the right to deduct costs of earning this income.
The change will come into effect as of 2023. Therefore, taxpayers who obtain income from rental activity will be able to use the general rules for reconciliation of this income for the last time in 2022.
As of July 1, 2023, the limit for applying the 12.5% lump sum rate provided for spouses has been increased to PLN 200,000 (currently the limit is PLN 100,000). The new limit will already apply to income earned from January 1, 2023, so the increased limit will apply to spouses for the entire year 2023.
Lump-sum tax on foreign income for taxpayers with above-average level of assets
The Polish Deal introduced 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 (i.e. PLN 200,000 for each tax year) regardless of the level of foreign income and without the need to declare in their tax return the sources of such income, the exact amount of the income, and the country in which it was derived.
The solution is addressed to a special group of taxpayers who have such a level of assets that allow them to invest in socially beneficial undertakings in the territory of Poland, which fall within the notion of corporate social responsibility. The condition for applying the lump-sum taxation is that the taxpayer incurs social expenses provided for in the Polish Deal act (e.g. the development of science) in the amount of at least PLN 100,000.