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.
The Polish Deal set out many significant changes for taxation of individuals.
Change of the tax brackets and the tax-free amount
As of 2022, the application of the 32% income tax rate takes place when the threshold of PLN 120,000 is exceeded.
The tax-free amount is PLN 30,000 for all taxpayers who reconcile their income according to the tax scale (17/32%). By the end of 2021, the tax-free amount was PLN 8,000 and was progressively decreasing.
No tax deductibility of the health insurance contribution
The health insurance contribution (9%) is no longer deductible from income tax. Until December 31, 2021 the 7,75% of the health insurance contribution base was tax deductible.
This change affects everyone who is obliged to pay the health insurance contributions, so employees, contractors, entrepreneurs as well as pensioners.
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 (17% / 32%);
- 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 60,000.00 - PLN 335,94 per month,
- for revenue between PLN 60,000.00 and 300,000.00 - PLN 559,89 per month,
- for revenue exceeding PLN 300,000.00 - PLN 1,007.81 per month.
However, the health insurance contribution cannot be lower than PLN 270.90 per month. Please note that there is no amount of the maximum contribution indicated.
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 member and proxy 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.
Health insurance contributions for board members and proxies
From 2022 onwards, taxpayers can take advantage of new tax reliefs, among others:
I. Middle class tax relief
Middle class tax relief is a special solution that has been introduced to offset the effects of non-deductibility of health insurance contributions. It applies only to persons who receive income from employment relationship and non-agricultural business activity (subject to the tax scale) amounting annually to between PLN 68,410.00 and PLN 133,692.00.
Currently, the Ministry of Finance announces changes in this respect, consisting in modification of the upper limit of income entitling to the relief and including for its purposes also contractors, pensioners, persons receiving benefits from the Social Insurance Authority (ZUS) and academic teachers.
II. Tax relief for single parents
In place of the preferential annual tax reconciliation of a single parent with a child, the Polish Deal introduced a new tax relief for single parents, i.e. a deduction of 1 500 PLN per year from the personal income tax due.
III. Relief for return, 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.
The total amount of income exempt from tax under the above mentioned reliefs cannot exceed 85,528 PLN 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 85,528 PLN.
The relief for the return
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 his 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 his residence in the territory of Poland in the period covering three calendar years preceding the year in which he changed his 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 his income.
The above reliefs may be claimed in the tax return (starting from the tax return for 2022) or during the tax year.
IV. Tax reliefs for innovative and developing companies and individual entrepreneurs
The Polish Deal introduced new tax reliefs to stimulate the innovativeness of entrepreneurs, and modified the existing ones for research and development (R&D) activities, in particular:
- 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 robotization 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 1,000,000 incurred on increasing revenues of sale of goods,
- and new tax reliefs on IPO or CSR.
V. 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.
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. So, now 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 specialized design professions the tax rate amounts to 14% (previously 17% or 15%). In turn, 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 at 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.
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 his 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.