Polish Deal – Changes in Polish Personal Income Tax (PIT)

On November 15, 2021 the President signed into law the Act of 29 October 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts (Polish Journal of Laws 2021, item 2105), which is part of the program known as the “Polish Deal” and introduces a number of changes in Polish tax regulations, most of which are to be effective from January 1, 2022 onwards.

We present the most important changes to the Polish personal income tax (PIT) introduced by this Act

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Determination of the tax amount for taxpayers settling according to the tax scale

The tax-free amount has been increased to PLN 30,000 for all taxpayers who are settling their dues according to the tax scale – regardless of the amount of their income. The income threshold above which the 32% progressive tax rate applies has also been increased from PLN 85 528 to PLN 120 000.

For employees or taxpayers with income from self-employment (non-agricultural business) activity in the amount between PLN 68,412.00 and PLN 133,692.00 the so-called “middle class relief” has been introduced, which consists in the possibility of deducting from income earned an appropriate amount calculated using a formula specified in the act.

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Elimination of the tax deductibility of a portion of the health insurance premium paid

For all taxpayers, regardless of their tax settlement method, the possibility to deduct paid health insurance premiums from their taxes due has been abolished. Before the change in regulations, it was possible to partially deduct it (up to 7.75% of the contribution assessment basis).

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Tax relief for taxpayers transferring their place of residence to the territory of the Republic of Poland

Up to PLN 85,528, the income of a taxpayer who transfers his place of residence to Poland is exempt from income tax. The relief applies to income earned in four consecutive tax years, counting from the beginning of the year in which the taxpayer moved his place of residence to Poland or from the beginning of the following year.

The exemption applies only to income earned:

• from service relationship, employment relationship, contract work and co-operative employment relationship,
• from contracts of mandate or contracts for specific work as specified in Art. 13 point 8 of the Polish PIT Act,
• from self-employment (non-agricultural business) activities to which the taxation rules set forth in Art. 27, Art. 30c or Art. 30ca of the Polish PIT Act (or in the Lump Sum Income Tax Act with respect to lump sums from registered income) apply.

The taxpayers to whom this relief is addressed are persons who changed their tax residency to Poland and for the last 3 years before the change of tax residency were not domiciled in Poland.

Residence outside Poland may be confirmed by a certificate of residence or other documents, e.g. certificates issued by administrations of other countries and documents concerning work or residence abroad.

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Senior Citizen tax relief

The senior citizen tax relief consists of a tax exemption of income up to PLN 85,528.00 in a tax year.

The senior citizen’s tax relief is available to women over 60 and men over 65 whilst still earning income:

• from a service relationship, employment relationship, employment contract or co-operative employment relationship,
• from contracts of mandate or contracts for specific work as defined in Article 13 point 8 of the Polish PIT Act,
• from self-employment (non-agricultural business) activities to which the taxation rules set forth in Art. 27, Art. 30c or Art. 30ca of the Polish PIT Act (or in the Lump Sum Income Tax Act with respect to lump sums from registered income) apply.

– who, in spite of attaining the right to receive a pension, resign from receiving it.

This means that working seniors who do not receive a pension will pay tax only after they exceed the income threshold of PLN 115 528.00 (PLN 30 000 free amount for everyone + PLN 85 528 relief for seniors).

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Tax relief for taxpayers raising at least four children

Income up to the amount of PLN 85 528.00 in the tax year will be exempt from taxation for taxpayers raising at least four children.

This relief is available to any person who in the tax year:

• exercised legal parental authority,
• acted as a legal guardian with whom the child resided,
• acted as a foster family,
• fulfilled his/her alimony obligation or performed the function of a foster family in the case of school-age children

– for at least four children.

The exemption applies only to income obtained

• from a service relationship, employment relationship, employment contract or co-operative employment relationship,
• from contracts of mandate or contracts for specific work as specified in Art. 13 item 8 of the Polish PIT Act,
• from self-employment (non-agricultural business) activities to which the taxation rules set forth in Art. 27, Art. 30c or Art. 30ca of the Polish PIT Act (or in the Lump Sum Income Tax Act with respect to lump sums from registered income) apply.

This means that persons raising at least four children will pay tax only after they exceed the income threshold of PLN 115,528.00 (PLN 30,000 free amount for everyone + PLN 85,528 relief). For spouses who settle jointly, the tax-free amount will be PLN 231 056.00.

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Change in the rules of taxation of income derived from private rental or lease of buildings and residential premises

The possibility of taxation according to tax scale of income generated from private lease of buildings and residential premises has been eliminated. All taxpayers who earn income in this way will have to tax it as a lump sum on registered income. The flat rate will remain unchanged and will amount to 8.5% of revenue up to PLN 100,000 and 12.5% of revenue in excess of PLN 100,000.

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Changes aimed at counteracting illegal employment

The introduced changes are aimed at making the dishonest employer take over the burden of income tax on remuneration of the natural person he illegally employed.

Income received by an employee due to illegal employment has been exempted from taxation.

At the same time, an employer who employs an employee illegally must include in his taxable income the value of the illegally employed employee’s income and, in addition, the equivalent of the minimum wage for each month in which the illegal employment was identified.

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Change in taxation of sale of movable property used in the course of business under a lease agreement

Business income will include income from the sale of movable property used for business purposes under a lease agreement. This also includes a situation when these assets were withdrawn from business activity, if 6 years have not passed between the first day of the month following the month when these assets were withdrawn from business activity and the date of their disposal against payment.

This change affects most of all persons who use cars under lease agreements to conduct business activity. Until now, after the end of the agreement and purchase of the leased car, such a person could sell the car after 6 months from the date of purchase without the need to tax the revenue generated from the sale. Currently, it will be possible only after the lapse of 6 years from that moment.

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