Polish Deal 2.0 has become a reality. What did the Senate amendments change?

Polish Deal 2.0 has become a reality. What did the Senate amendments change?

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The law amending the Polish Deal – after accepting some of the Senate’s amendments – has been signed by the President. Compared to the originally enacted law, the rules for single parents to account for their children were changed, and the percentage of tax donated to public benefit organizations was increased. The provision allowing “linemen” to deduct part of the health contribution paid from their taxes was also clarified. What is the list of key changes that will be introduced by the amendment to the Polish Deal – already including the Senate amendments?

The Sejm considered amendments brought by the Senate on June 9, 2022. In addition to editorial changes, two important regulations were adopted. The first reinstates the rules in effect in 2021 for a single parent with a child to file a tax return, meaning that such a taxpayer will be able to take advantage of double the tax-free amount. The second of the aforementioned amendments will increase the percentage of tax given to public benefit organizations – from 1% to 1.5%. Below are the 8 most important changes that the Polish Deal 2.0 introduces.

1. Possible change in the form of taxation

The possibility to choose the form of taxation again will be limited only to the choice of general rules (tax scale). This means that an entrepreneur currently settling under the general rules will not be entitled to change the form of taxation to a flat tax or a flat rate. It will also not be possible to switch from a flat tax to a flat tax or from a flat tax to a flat rate.

2. Reduction of the tax rate to 12%

Reduction of the tax rate in the first tax bracket from 17% to 12% for PIT taxpayers settling in accordance with the general rules (entrepreneurs settling according to the tax scale, persons employed under a contract of employment, persons receiving remuneration for appointment, contractors, pensioners). The change is intended to compensate for the elimination of the middle class relief.

3.  Elimination of relief for the middle class

Ever since the ruling party announced that it planned to overhaul the Polish Deal, the “removal” of middle-class relief has been one of the main tenets of the proposed changes. Importantly, the law is to take effect on July 1, 2022, while the removal of middle-class relief is to apply retroactively – from January 1, 2022.

While the elimination of the middle-class deduction itself means that a person accounting according to the scale will receive a lower salary, this will be compensated for by the – already mentioned in the second point – reduction of the tax rate to 12%. Ultimately, the employee will receive a higher net salary than in the period from January to the end of June 2022. As a result, it is certain that those settling according to the tax scale will not lose out on the changes that will take effect on July 1, 2022.

While the elimination of the middle-class deduction itself means that a person accounting according to the scale will receive a lower salary, this will be compensated for by the – already mentioned in the second point – reduction of the tax rate to 12%. Ultimately, the employee will receive a higher net salary than in the period from January to the end of June 2022. As a result, it is certain that those settling according to the tax scale will not lose out on the changes that will take effect on July 1, 2022.

Net remuneration according to the Polish Deal: PLN 5,024
Net remuneration according to the Polish Deal 2.0: PLN 5,102
Hypothetical net salary assuming that the tax rate is reduced and the middle class relief is not removed: PLN 5,163.

As the amounts above indicate, the taxpayer will gain PLN 78 from the changes, while he would gain nearly twice as much, or PLN 139, if the middle-class relief were left in place.

Given that the regulations will take effect retroactively (as of January 1, 2022), those settling according to the scale will recover the amount of overpaid advances at the stage of filing the annual return for 2022.

4. Return of relief for single parents

As of July 1, 2022, the relief for single parents, which was previously removed with the entry of the Polish Deal, will return. Initially, it was assumed that the mechanism for calculating the relief itself would be the same as in 2021. – i.e. an analogous mechanism to that of joint accounting with a spouse. The difference, however, was to be that a single parent – accounting jointly with a child – was to be entitled to one and a half times the free amount, which means PLN 45,000 (previously it was double). However, the Senate tabled an amendment to restore the relief in the form in force in 2021. – It was adopted by the Sejm. As a result, a single parent accounting jointly with a child will be able to take advantage of double the tax-free amount. It will also increase its I tax threshold to PLN 240,000 (double the I tax threshold).

The Sejm also adopted amendments by the Senate, according to which a joint settlement with a child will also be entitled to a person who is raising at least one child jointly with the other parent or legal tutor, including when the child is under alternating custody, in connection with which both parents have been determined a child-rearing benefit – in accordance with the Law on State Aid for Child-Rearing.

As the relief for single parents will be reinstated, the relief for single parents will be removed. Under this relief, the taxpayer was entitled to a one-time tax deduction of PLN 1,500 at the stage of preparing the annual return. It seems that the new solution should be more favorable.

As with the reduced tax rate and the removal of the middle class relief, the above rules will have to be applied to income (revenue) earned from January 1, 2022. This means, therefore, that a taxpayer settling jointly with a child will benefit from the relief at the stage of filing the annual return for 2022, and the relief will apply to income earned between January and December 2022.

The Sejm adopted two important amendments by the Senate. The first reinstates the rules in effect in 2021 for a single parent with a child to file a tax return, meaning that such a taxpayer will be able to take advantage of double the tax-free amount. The second amendment will increase the percentage of tax donated to public benefit organizations – from 1% to 1.5%.

5.  Health contribution in “linemen” deductible only once

Taxpayers accounting for the flat tax will be entitled to deduct from their tax base (income) health insurance contributions paid in a total amount not exceeding PLN 8,700 in a tax year. According to many experts, the provisions of the law passed by the Sejm allowed a double deduction of health insurance contributions paid in the amount of PLN 8,700 from income (if the taxpayer paid health insurance contributions in excess of PLN 8,700 during the year). First – as a deductible expense. Second – the excess over this amount (the second PLN 8,700), which was not included as a deductible expense, could be deducted under Article 30c paragraph 2 point 2 and Article 30c paragraph 3 of the PIT Law.

However, this was not the intention of lawmakers. In order to avoid possible interpretative inaccuracies, the Senate proposed an amendment to Article 23 paragraph 1 point 58 and Article 30c paragraph 2 of the PIT Law, which stipulates that “the total amount of such contributions included in deductible expenses or deducted from income may not exceed PLN 8700 in a tax year.” It was adopted by the Sejm. As a result, a taxpayer settling a flat tax will be able to deduct health contribution only once.

“Flat-rate taxpayers”, on the other hand, will be entitled to deduct from their income up to 50% of the health insurance contribution paid during the year.

6. Proxies will pay the health contribution

The adopted law also dispels doubts about the “contribution” of proxies. According to the amendments passed by the Sejm, a person appointed to perform a function by virtue of an act of appointment, and receiving remuneration for it, will be subject to the obligation to pay health insurance premiums. Interestingly, the explanatory memorandum to the draft amendment indicates that a proxy is subject to the obligation to pay health premiums as early as January 1, 2022, and the amendment is only intended to clarify the provision and resolve doubts arising in this area. 

What effect will the new (or, as the government argues, clarified) regulations have on the net salary of a proxy receiving an emolument of PLN 80,000 per year?
 
Before the planned changes came into effect (a 17% tax rate was applied, assuming that the proxy was not subject to health insurance contributions)
 

Income

Health contribution

Tax due

Net salary

 

PLN 80 000,00

 

PLN 0,00

 

PLN 7 990,00

 

PLN 72 010,00

 

Polish Deal 2.0 (including 12% tax rate and obligation to pay health contribution)

Income

Health contribution

Tax due

Net salary

 

PLN 80 000,00

 

PLN 7 200,00

 

PLN 5 640,00

 

PLN 67 160,00

 

The legislation passed by the Sejm also provides for the expansion of the catalog of persons considered to be engaged in non-agricultural business activity under the Social Insurance System Act – to include general partners of limited joint-stock partnerships. This means that such persons will also be subject to the obligation to pay social security contributions.

7. New deadlines for JPK_CIT and JPK_PIT

The deadline for filing JPK for accounting books will be postponed. The new obligation will be introduced in three stages. Starting in 2024, the new obligation will apply to the largest companies, that is, CIT taxpayers whose revenues for the previous tax year exceed €50 million. From 2025, the obligation to keep and send the new type of records will be extended to more CIT taxpayers (other than those mentioned above), as well as PIT taxpayers who are required to send JPK_VAT records. In the final stage (starting in 2026), other PIT and CIT taxpayers will start sending their records.

8. Raise the percentage of tax donated to public benefit organizations

The Sejm also passed an amendment by the Senate regarding the percentage of tax to be donated to PBOs. Until now, taxpayers each year had the option of donating 1% of the tax due shown in their annual PIT return to a public benefit organization (PBO). According to the amendments, when filing the return for 2022, the percentage of tax donated to PBOs will be 1.5%.

The President signed

The law passed by the Sejm made its way to the desk of the President of the Republic of Poland for signature and received his signature on June 13, and was published in the Journal of Laws on June 15. This means that Polish Deal 2.0 has officially become a reality and will take effect on July 1, 2022.