On 15 May 2021 a draft amendment to the PIT, CIT and certain other acts was revealed (Journal of Laws of 2020, item 1905, hereinafter: the Draft). We have listed the most significant changes that taxpayers – individuals and companies – might expect.
Changed method for calculating health insurance contribution for the self-employed
The Draft provides for the obligation to pay health insurance contributions by persons running a business in proportion to their income, i.e. under the terms analogous to regular employment contracts.
Possibility eliminated for deducting health insurance contributions from tax
The proposed change applies to all Social Security Institution-contributions (ZUS) payers yet given the introduction of a new tax relief structure dedicated to staff hired under employment contracts (with a salary of PLN 70,000 – PLN 130,000), it will in fact be felt primarily by entrepreneurs with relatively high income.
Health contribution vs. appointment
9% health rate on income will also be paid by members of the management board appointed by a resolution. Under the legislation currently in place the remuneration paid under a resolution is not a separate legal title to social insurance or health insurance.
Increased tax-exempt amount
The Draft provides for a PLN 30,000 tax-exempt amount.
Increased amount for the 32% tax rate
Under the planned amendment, the second tax threshold will apply to income above PLN 120,000.
Change in rates for tax on registered income without deductible costs
Under the Draft assumptions, the rate for tax on registered income without deductible costs will go down from 17% to 14% for representatives of medical professions, i.e. doctors, veterinarians, dentists and dental technicians, medical assistants, midwives and nurses, psychologists, physiotherapists. It will be irrelevant whether the services will be provided by representatives of the indicated professions in person or with the help of employed persons. They will pay 14% on revenues, regardless of whether they will provide their services in person or with the help of employees. Also, the 14% rate will apply to the taxation of services provided by architects and engineers. Certain revenues related to the provision of IT services (currently taxed at a 15% flat rate) will be subject to a lower 12% tax rate.
Health insurance contribution for taxpayers on registered income without deductible costs
The health insurance contribution for these taxpayers will be one third of the applied lump sum and like in the case of other taxpayers it will not be tax deductible at all.
Discontinued taxation in the form of a lump-sum tax rate
Under the Draft, starting 1 January 2022, lump-sum tax-rate will no longer be an option to choose from by new taxpayers. This form of taxation will be only available for taxpayers who used it in 2021. For these taxpayers the lawmaker also provided for different rules for calculating health insurance contributions. The contribution will be calculated on the basis of the average monthly salary in the enterprise sector in the fourth quarter of the previous year, including payments from profit announced by the President of the Central Statistical Office. Such a remuneration in Q4 in 2020 amounted to PLN 5,656.51. The contribution will not be tax deductible.
Another limitation for cash settlements
The limit for cash payments between companies is to be reduced from PLN 15,000 to PLN 8,000. Thus, any payment of an invoice exceeding PLN 8,000 made outside of a bank account will not be tax deductible. A quantitative limit is also planned: PLN 20,000 for cash transactions with consumers. The new regulations are to apply to entrepreneurs with an annual retail turnover exceeding PLN 20,000.
Taxation of flat rental
Under the new regulations the income of natural persons from rental, sublet and lease can only be subject to tax on registered income without deductible costs (as a rule 8.5% of the revenue and 12.5% on the excess of revenue over PLN 100,000 per year). Entrepreneurs may still choose one of these taxation methods: tax on registered income without deductible costs, tax-rate scale and flat tax.
Contributing revalued assets to a company
Under the regulations revealed in the Draft, the initial value of an asset that was acquired into private property and then entered into the company’s records must be valued at the purchase price or market value, if lower than the purchase price.
Taxation of post-lease cars
Under the amended regulations, it will be impossible to purchase a car used previously in business activity and sell it further privately without tax. The revenue from the sale of a post-lease car, purchased for personal property, will be an income from business activity until 6 years elapse between the first day of the month following the month in which the car was withdrawn from business activity and the date of its sale.
Homecoming Tax Relief
The new regulations provide for an income tax relief for taxpayers who settle in Poland and change their tax residence. It will consist in the possibility of deducting part of the tax due for four years following the year of the change of residence or the next one (the so-called base year). The deduction in the first year will be 50% of the tax due for the base year, in the second – 50% of the tax due for the first year of applying the relief, and in the third and fourth year it will be 50% of the tax due for the previous year of applying the relief, i.e. for the second and third respectively year of application of the deduction. The deduction will be available provided income comes from specific sources.
Limit for deducting debt financing
The proposed regulations clearly specify that debt financing costs may be classified as tax deductible up to PLN 3m or 30% of EBITDA. In addition, any interest on loans granted by a related entity, if the funds will be used directly or indirectly to finance capital transactions, will not be tax-deductible.
Limiting the deductibility of depreciation write-offs by real estate companies
Under the Draft, if a real estate company depreciates buildings for accounting purposes using lower rates than for tax purposes, the depreciation write-offs in the amount adopted for accounting purposes may be included in tax deductible costs.
Possibility to combine the R&D and IP Box relief
In accordance with the amendment, it will be possible to use the R&D and IP Box relief at the same time by taxpayers who earn income from intellectual property rights subject to the IP Box principle. Currently, the R&D relief cannot be included in the calculation of the tax base subject to 5% tax with IP Box, so it is not possible to apply the R&D relief and the preferential IP Box rate to the same income at the same time.
Changes to transfer pricing regulations
The Draft introduces numerous changes in income taxes with regard to transfer pricing regulations:
- changes in the definition of related entities, in particular with regard to companies without legal personality
- clarifying the matter of ‘exerting significant influence’
- introducing the possibility for making an in minus transfer pricing adjustment also when the taxpayer received an accounting document from a related entity that confirms that the related entity had made a transfer pricing adjustment in a certain amount and discontinuing the obligation to notify the transfer pricing adjustment in an annual tax return
- as for the safe harbor rules for financial transactions, the date was clarified as at which a loan agreement (credit, bond) should be compliant with the safe harbor conditions in terms of interest rates – it is clarified that they should be met each time the loan agreement is changed
- extended deadlines for preparing local transfer pricing documentation by the end of the tenth month after the end of the tax year
- clarifying the method for determining the value of a controlled transaction in the case of a deposit agreement (capital value), insurance contracts or reinsurance contracts (sum insured) as well as transactions involving the execution of a company deed for an entity that is not a legal person (total value of contributions made)
- making the value of a controlled transaction dependent on VAT neutrality
- introducing an exemption from the obligation to prepare local transfer pricing documentation for transactions between foreign establishments located in Poland, whose parent units are related entities, and between a foreign establishment located in Poland of a related entity that is a non-resident and a related entity having tax residence in Poland
- exemption from the obligation to prepare local transfer pricing documentation for controlled transactions covered by a tax pricing agreement and investment agreement and for controlled transactions covered by the safe harbor mechanism for loans, credits, bonds and transactions related to settlements in the scope of the so-called pure re-charge
- extending the deadline from 7 to 14 days for the filing of local transfer pricing documentation by the taxpayer at the request of the tax authority
- abandoning the statement on the preparation of the transfer pricing documentation as a separate document and its transfer, in a revised content, to the transfer pricing information; moreover, in accordance with the Draft, in the statement on the preparation of the local transfer pricing documentation, the taxpayer will declare that the local transfer pricing documentation has been prepared in accordance with facts, and the transfer prices covered by this documentation are set on terms that would be agreed between unrelated entities
- extending the deadline for filing information on transfer pricing by the end of the eleventh month after the end of the tax year of the entity (related and non-related in the scope of transactions other than controlled for the purposes of transactions with the so-called tax havens)
- changed authority to which the information on transfer prices is addressed: it will now be the head of the tax office competent in matters of income tax.
Introduction of a holding regime
In accordance with the proposed changes, the new method of taxation for holding companies assumes the CIT exemption of 95% of the amount of dividends received by the holding company from subsidiaries and full CIT exemption of profits from the sale of shares or stocks in subsidiaries.
Tax relief for robotic automation
The Draft provides for the introduction of the right to deduct from the tax base an additional 50% of the cost of obtaining revenues for robotic automation, similar to the current tax relief for research and development. The additional deduction cannot exceed 50% of the costs incurred.