At the session on October 1, 2021 the Sejm (the lower house of the Polish Parliament) adopted the tax laws as part of the Polish Deal, implementing the greatest tax changes of the recent years. Among a number of amendments, there are also those concerning flat rate income tax on certain types of income earned by individuals. These will be the successive changes to the series of revolutionary changes to flat rate tax in 2021, this time concerning also the manner of calculating mandatory health insurance contributions.

Notably, on October 29, 2021 the Sejm rejected the amendments adopted by the Senate concerning the flat rate tax and the health insurance thereon. The amendment concerning the extended vacatio legis for the amendment was also rejected.

The amendments are therefore expected to enter into force at the beginning of 2022, in the original wording as proposed in the draft of October 1, 2021.

What exactly will change after January 1, 2022?

Changes to flat rates

The Polish Deal will lower the rates for selected groups of professions. Therefore, as from January 1, 2022, the revenue generated from  the provision of healthcare services will be taxed according to a single new rate – 14%, regardless of whether they are performed on one’s own or with the help of employed personnel. Furthermore, the same rate will apply to the revenue from the provision of architectural and engineering services as well as specialist design services. On the other hand, the revenue from IT services will be taxed at the rate of 12%. Nowadays, the income from the above services is taxed at 17% and 15% respectively.

The implementation of reduced tax rates for certain professions in principle seems to be favourable for taxpayers.  However, considering all the implemented changes, including those related to the health contribution (discussed further in this article), on should concluded that they will not be as profitable as announced by the government.

Private lease

The taxation of private lease will also undergo crucial changes. Currently, the basic method of taxation of income from lease or (long-term) tenancy was the tax scale, while the flat rate was only a facultative form which taxpayers could choose. With the Polish Deal, the legislator is depriving taxpayers of the possibility to choose the form of taxation. Therefore, from January 1, 2022 on, the only method of taxation of private lease will be a flat rate tax on the registered revenue - the possibility of taxing revenue from lease on general principles (except for the revenue obtained as part of non-agricultural business activity) will be repealed. Thus, all taxpayers collecting revenue in this area will be subject to the same rules.

Under the current regulations, the following flat rates apply to rental income:

• 8.5% for revenue below PLN 100,000 per year,
• 12.5% on the surplus over PLN 100,000.

In principle, it is assumed that a flat rate tax is a favourable method of taxing lease, in particular when the revenues do not exceed PLN 100 000 and costs are low. On the other hand, the general rules of taxation are profitable in cases where significant costs are incurred, e.g. for renovation, rent or depreciation, with which taxpayers may reduce the tax base. The changes introduced will therefore affect those taxpayers who have been taxing their rental income according to the default scale, due to the possibility of taking into account significant costs.

Tax card

The Polish Deal also implements changes in terms of tax card (lump sum tax). In this regard the legislator introduces the rule that only those who already benefit from this form of taxation in 2021 will be able to use the tax card. Thus, the possibility for new taxpayers to elect the tax card will be closed from January 1, 2022. This option will also not be available to the taxpayers who have ceased to use the tax card for any reason, in which case they will not be able to return to this form of taxation.

The above changes will lead to a decrease in the numbers of taxpayers entitled to benefit from the tax card, and in a longer perspective to its complete withdrawal.

Health contribution in a flat rate and for the tax card

As of January 1, 2022, the health contribution for those taxable at a flat rate will depend on the annual revenue and the average remuneration in the private business sector in the fourth quarter of the preceding year. Consequently, the legislator has provided that the annual contribution assessment basis will be as follows:

• a product of the number of months subject to insurance and 60% of the average remuneration with the annual revenues up to PLN 60,000,
• a product of the number of months subject to insurance and 100% of the average remuneration with the annual revenues exceeding PLN 60,000, but not exceeding PLN 300,000,
• a product of the number of months subject to insurance and 180% of the average remuneration if the annual revenues are higher than PLN 300,000.

The health contribution will amount to 9% of the basis for its assessment.

With the current amount of the average remuneration - i.e. PLN 5,656.51 - contributions per year, assuming the obligation for 12 months, would amount to:  

On a mid-year basis, traders calculating the monthly amount of the health contribution will add up the revenues generated since the beginning of the year and until exceeding PLN 60,000 they will use as a basis 60% of the average remuneration, after exceeding this amount – 100% of the average monthly remuneration, while after exceeding PLN 300,000, it will be 180% of the average monthly remuneration. A taxpayer "jumping" to the next threshold during the year will be required to make an additional payment in the annual return - as the annual contribution assessment basis changed due to exceeding the revenue threshold.

Pursuant to the regulations currently in force, a fixed amount of monthly health contribution is settled for each year, calculated from a basis equal to 75% of the average remuneration in the private business sector. In 2021 this contribution amounts to PLN 381,81. Under the current law, taxpayers calculating their income tax may reduce its amount by 7.75% of the contribution assessment basis. Therefore, in the current year, the amount of PLN 328,78 may be deducted from tax. Considering the above, the real cost for a taxpayer this year resulting from the health insurance contribution is approximately PLN 53.

Notably, according to the new regulations, taxpayers will no longer be allowed to deduct the health contributions paid from their taxes. In consequence, the new regulations will have a negative impact on business owners, who will experience a significant increase in the burden of the health insurance rate.

With regard to health contribution for those applying taxation in the form of tax card, the basis for calculation of monthly contribution will be the amount of the minimum remuneration in force on January 1 of a given year. Thus, as of January 2022, taxpayers will calculate a 9% contribution on the amount of PLN 3,010. In consequence, taxpayers applying the tax card in the year 2022 will pay approximately PLN 270 of the contribution per month. Likewise for other taxpayers, they will be deprived of the possibility to deduct part of the health contribution from their tax.

The year 2022 has many changes in store for taxpayers. The scale of the changes and the blistering pace of legislative work may result in many inadequacies, and thus in doubts with which taxpayers will probably have to cope on their own. The widely announced benefits of the Polish Deal also appear meager in a holistic analysis. In the case of changes in the flat-rate income tax on certain revenues earned by natural persons, it should be concluded that, as a result, a larger group of taxpayers will feel the negative implications of the Polish Deal than the positive ones.

Kinga Duszna, Tax Consultant, ATA Tax Sp. z o.o.

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