The Polish Governance or a revolution in taxes for employees and associates.

The new regulations raise a number of doubts about their practical implications for employees and entrepreneurs. 

During the webinar "Polish Governance - revolution in Taxes for Employees and Associates on the 13th of October 2021, many up-to-date questions were raised. 
Katarzyna Serwińska, tax advisor, and Tomasz Kret, senior lawyer prepared answers to them. 

• Does the planned bill change the rules for exceeding the annual contribution base? (30 times). 

No, the act introducing the Polish Governance does not change the regulations concerning the annual base for calculation of pension contributions. One should remember, however, that this base is subject to annual indexation and is expected to be PLN 177,660 in 2022.
 

• What about the health contributions for management board members paid on the basis of appointment if they are not subject to social security in Poland but abroad (they have an A1 certificate from another EU country)? 

After the Polish Governance comes into effect, persons appointed to perform a function based on an act of appointment (e.g. management board members and general proxies) who receive remuneration on this account will, as a rule, be subject to a 9% health insurance contribution.
However, management board members receiving remuneration in this form will not be subject to health insurance in Poland provided that they obtain an A1 certificate confirming that they are covered by obligatory social security in another EU country.
 

• The Polish Governance excludes the possibility of paying taxes jointly with a child, i.e. dividing income by 2. This would be very unfavourable for mothers with high incomes who are in the second tax bracket. Did it go in?

Indeed, once the Polish Governance comes into effect, joint tax payment with a child will no longer be possible. In return, a tax relief of PLN 1,500 is to be introduced.
 

• For the management board, will the health contribution calculation be based on income or revenue? We have, for example, a benefit for car use or additional life insurance.

The value of additional benefits should be added to the health insurance contribution base. It should be remembered that the flat rate for private use of a company car stipulated in the PIT Act applies only to employees.
 

• Wouldn't switching from an employment contract to B2B amount to avoiding establishment of an employment relationship for already employed managers?

As long as the manager performs different duties as a sole proprietor (B2B) than under the employment contract, and their relationship with the company changes accordingly, such a change is possible. 
Please note, however, that income from business activity involving management activities will be taxed according to the scale – the 19% flat tax will not apply. Therefore, such a change may not bring the expected benefits.
 

• So a person earning e.g. PLN 11,150 will not be able to take advantage of the reliefs and a person earning PLN 11,140 will be able to take advantage of them, or will it be progressive, like now, with only PLN 10 not being subject to the relief? 

Unfortunately, the "progression" will not apply here. However, the middle class tax break will be available to married couples filing joint tax returns, whose half of the annual income is between PLN 68,412 and PLN 133,692.
 

• Does the middle class tax break also apply to B2B contracts? 

Yes, but only if the income earned under them is taxed according to a progressive tax scale.
 

• Will the Polish Governance result in higher employer costs or just lower net income for the employee? 

As a direct result of introduction of the Polish Governance, employment costs are not expected to increase. However, it should be remembered that these costs will increase due to increasing the limit of the contribution assessment basis for retirement and disability pensions (in 2022 it is expected to be PLN 177,660).
In addition, employees can demand that employers compensate them for the losses resulting from the Polish Governance as well as inflationary increases.
 

• Exactly, and what about those independent ones who currently have an employment contract and would benefit from b2b? What is this change in the relationship supposed to involve?

The B2B model could be applicable as long as both parties consciously change the terms of the cooperation, inter alia give up the guarantees or benefits typical of employment. 
 

• What will be the base from which we will calculate the 4.9%? 

Entrepreneurs who settle their income tax based on the 19% flat rate will calculate their health insurance contributions on the basis of their revenue less the costs incurred and contributions for social security and the labour fund (unless they have been included in tax deductible expenses).
 

• What about joint spousal tax settlements? Will it stay? What will change? 

Joint spousal tax settlements will remain. Minor changes are to be made to allow for filing joint annual returns also if the marriage was entered into during the year.
 

• Is the middle class tax break available to every employee until the annual limit is exceeded, or if someone earns e.g. PLN 12,000 gross already in January, they are automatically not entitled to these breaks? 

In the monthly advances settled by the employer, the break in the appropriate amount will be available for any month in which the employee's income ranges between PLN 5,701 and PLN 11,141. Whether the employee's income in other months is higher will not matter. 
 

• Does the so-called return relief apply to foreigners coming to Poland and transferring their residence here? 

Yes, the return relief will apply to citizens of all EU and EEA countries and Switzerland, as well as citizens of other countries who, prior to their arrival in Poland, were resident in the EU, EEA, Switzerland and other specified countries.
 

• Is there a defined return date for the return relief? Does the person have to return after 1 January 2022? Or will the relief cover also those who return in Q4 2021?

The return relief will only apply to those who relocate their residence to Poland after 31 December 2021.

• Is the relief for deduction of trade union contributions still on the table?

Yes. This relief will make it possible to deduct from the tax base contributions paid to trade unions up to PLN 300 per annum.
 

• As part of these changes, are there any changes expected to the charge for the Company Social Benefit Fund?

No, the Polish Governance does not introduce any changes in this regard.
 

• If someone collected a benefit abroad for the past two years, are they entitled to the return relief as well?

Yes, as long as the other conditions for the relief are satisfied. The source of income received before the change of residence is not relevant.
 

• What will the combination of the middle class tax break and the 50% tax deductible expenses for authors look like?

The 50% tax deductible expenses have no impact on the middle class tax break.
 

• Will the sickness contribution for management contracts (mandate agreement) continue to be voluntary?

Yes, in this respect the Polish Governance does not introduce any changes.
 

• If a person returns to Poland and collects a benefit from another country for 3 months – is this benefit also covered by the relief (the so-called return relief)?

No. The relief will apply to income from employment, mandates and individual business activities taxed according to the tax scale.
 

• Is the amount of the 2022 annual limitation of the base for calculation of pension contributions known? I mean the so-called 30-times limit on social security contributions.

The limit on the annual pension contribution base for 2022 is not yet known, but it is expected to be PLN 177,660.
 

• Will the tax relief for senior citizens/pensioners employed on the basis of an employment contract be settled by the employee in their annual return or is the employer required to apply the relief?

The employer will be required to apply this relief as long as the employee/pensioner provides it with a written statement that they qualify for the relief.
 

• What if a person earns PLN 11,100 and then, I understand, we apply the middle class tax break on a monthly basis, and for two months they receive a bonus increasing this amount to PLN 20,000 gross? Then for two months we do not apply it?

Yes, we confirm that.

• If there are two tax breaks for the middle class (depending on the amount of income) and the employee has a variable salary – is the employer supposed to check every month the employee's variable salary, their income bracket, in order to apply the appropriate middle class tax break?

Yes, we confirm that.

Do you know how the new Polish Governance will affect your business?

If you have questions on how to minimise the effects of the new regulations, please contact us.

Katarzyna Serwińska, tax advisor, partner, Raczkowski 
Tomasz Kret, senior lawyer, Raczkowski