The "Polish Governance" announced on Saturday is to introduce changes to the tax and insurance charges on individuals. Below is general information on the announced changes that may affect you and your employees and contractors. The details of the changes are not yet known at this time.

Personal income tax

• Increase in the tax-free amount to PLN 30 thousand 

This is a favourable and expected change. However, it is not yet known whether and to what extent individual entrepreneurs paying 19% flat rate tax will be able to benefit from it. 

• Increase of the tax threshold to PLN 120 thousand.

Assuming that the tax-free amount will be the same for all taxpayers settling in accordance with the general rules, and social security contributions will still be deductible from the tax base, the increase of the tax threshold will make the 32% rate applicable only if the taxpayer's gross income exceeds PLN 170,000. 

• New tax relief for employees earning between PLN 70,000 and PLN 130,000

The relief is to ensure that the changes introduced by the Polish Governance will be neutral for employees with an income of PLN 6-10 thousand /month. It has been reported in the media that this relief may take the form of an increase in deductible costs. No further information on this relief was provided.

• Tax relief for persons returning from emigration

Poles who decide to return to Poland will be entitled to show a taxable amount lower by PLN 50 thousand in their tax returns for 2022 and 2023. It is not stated whether this reduction of the tax base will apply to all income or only to income from specific sources. 

• Employees working after attaining retirement age will not pay tax

Employees who do not retire after reaching retirement age and continue to work will not pay income tax if their income does not exceed PLN 120 thousand.

• Lump-sum tax on foreign income for small enterprises

Small enterprises that transfer their tax residence to Poland will pay a fixed lump sum on their foreign income. It is not known whether individual entrepreneurs will be able to benefit from this preference, how much such a lump sum is to amount to and whether the right to pay it will be limited in time.

Social Insurance

• Full contribution of “junk contracts”

Employment contracts for specific work are soon to be subject to full social security contributions. This is likely to mean the abolition of the possibility to pay social insurance contributions only on income obtained on the basis of one of several contracts of this type. 

• The announcement of the abolition of "junk contracts".

In the somewhat longer term, the introduction of a single type of agreements for contracted work is to be expected. No details of such a contract or information on when such a change would come into effect were given.

• Social security for the poorest artists

Provisions have been announced for the entitlement of professional artists for the poorest artists, who are often employed on non-contractual contracts on which no insurance contributions are paid. These provisions are to ensure that such artists can access social and health insurance (although it should be noted that artists can currently take out voluntary insurance). What is new, however, is the possibility for artists to receive subsidies for insurance premiums. It is possible that, in practice, this may mean that at least some contracts for specific work will be subject to social insurance contributions.

Health insurance 

• Contribution paid on income

This change will only affect individual entrepreneurs who can currently pay health insurance premiums on a fixed basis, independent from income. Depriving entrepreneurs of this entitlement, while at the same time not being able to deduct the contribution from tax (as discussed below), will result in a significant decrease in their net income. 

• No tax deductibility of contributions   

Currently, just over 86% of the amount of health insurance premiums is tax deductible. As a result, less than 14% of the contribution is a real charges for the taxpayer. The elimination of this mechanism will result in each taxpayer bearing an additional charges of 9% in addition to the 17% or 32% tax. Consequently, the cumulative rate of tax and health insurance will be 26% and 41% respectively.

Also individual entrepreneurs settling accounts at a flat rate (19%) will be deprived of the possibility to deduct health insurance premiums from tax, which will increase the charges to approximately 28%.

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The above changes have been presented in a very general manner and it is difficult to assess the real effects of their introduction on the situation of individual taxpayers. This will only be possible after the publication of draft legislation implementing them. It will then be possible to consider whether their negative impact on the income of certain taxpayers can be at least partially mitigated. Such drafts will probably appear in autumn 2021, as some of them are planned to come into force in 2022.
 

Contact us: Katarzyna Serwińska and Tomasz Kret.