Review of Polish Deal in Personal Income Tax
The Polish Deal proposed by an act published on July 26, 2021 on the website of the Government Legislation Centre assumes significant changes to the Personal Income Tax Act. The main proposals included in the draft concern the tax scale, tax-free allowance, the basis for health insurance contributions, implementation of the so-called ‘return relief’ or transitional income tax, as well as greater transparency in terms of the jurisdiction of the tax offices for taxpayers changing their domicile.
The draft of the Ministry of Finance proposes an increase in the tax free amount from PLN 8 000 to PLN 30 000 and it concerns taxpayers settling their income according to the standard tax scale. This will be the highest level of the tax free allowance in Poland so far, comparable to that in Germany or in France.
It is planned to increase the second threshold of the tax scale from PLN 85 528 to PLN 120 000. Income above this amount will be taxed at 32% rate. For incomes not exceeding PLN 120 000 per year, a tax rate of 17% will apply.
The draft incorporates changes to the basis for calculating health insurance contributions and the withdrawal of the possibility to deduct them from income tax. In consequence, both employees as well as employers will pay contributions at the same rate, which is 9% per month on the tax base. The basis for calculation will be the actual income generated from the conducted activity instead of a fixed lump-sum. The income will be the basis for assessing the contribution for persons settling according to the tax scale, at a 19% tax rate and those paying income tax on qualified intellectual property rights.
There will also be a relief for those who have changed their tax residency to Poland and received income from an employment agreement, activities pursued in a personal capacity, non-agricultural business or copyrights. This entirely new solution is to apply for a period of 4 years from the change of tax residence and will consist in the possibility of deducting 50% of the tax due for the year in which the taxpayer changed residence, and in the second, third and fourth year of application of the relief, a deduction of 50% of the tax due will be allowed for each of the following three years respectively.
Another new proposal is the transitional income tax designated for taxpayers who have reached income and then failed to declare it in total or in part to be taxed with income tax in Poland. Taxation with the transitional income tax will be voluntary and time- limited, which means that taxpayers, until the end of 2022, will be able to voluntarily assess their legal and tax situation and decide on whether or not to make adjustments to their income that was not fully or at all declared for taxation. The transitional tax rate is set at 8% of income. Currently, a tax rate of 75% applies to income not disclosed by the taxpayer.
The draft also proposes to make easier the procedure for people changing their domicile after the end of tax year. Currently, the tax office relevant for filing the tax return for the previous year is the tax office according to the taxpayer's domicile on 31 December of the tax year, even though the taxpayer may already reside in another city on the date of filing the return. The proposal provides that the return should be filed with the tax office relevant for the taxpayer's domicile on the date of filing the return.
The bill is currently under public consultation, which will last until August 30, 2021.
Magdalena Walczyńska, Tax Consultant, ATA Tax Sp. z o.o.
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