On January 1, 2022, a “historic tax reform” – as referred to by the Polish government – came into force, with major changes implemented into Poland’s tax system. Just a few months later, another tax reform package, now known as the Polish Deal 2.0, was introduced. We spoke with Penteris Head of Tax Artur Plutowski and PwC Legal Partner Katarzyna Komorowska to learn what was the driving force behind the update and how it will impact the business sector in Poland.
Fixing Past Wrongs
“The first six months of the Polish Deal 1.0 being in force showed that the reform requires clarification in many respects,” Komorowska starts. “The complexity of the tax rules implemented in version 1.0, in many cases, led to numerous difficulties in calculating the final amounts of taxes both for entrepreneurs and employees – taxpayers – as well as for employers as tax remitters.” The Polish Deal 2.0, she says, “is another tax reform that introduces amendments to the act on personal income tax (PIT) and certain other acts. The declared purpose of this amendment is to eliminate faults and doubts arising from the Polish Deal 1.0.”
Plutowski also highlights that the amendment was a result of hasty, inconsistent, and complex changes introduced by the original tax reform. “During the pandemic years, Poland became one of the unfortunate leaders with regards to the death rate in the EU, mainly due to the belated strategy and often chaotic organization of emergency healthcare,” he says, adding that, “in order to reverse its declining support, the government introduced the Polish Deal 1.0, which was politically-driven, with the ultimate goal of securing a third term of office for the government.” Consequently, he explains, this financial and social burden placed on businesses resulted in lower payslips for hundreds of thousands of taxpayers in comparison to 2021. The updated Polish Deal 2.0 aims “to reverse several unfavorable changes and introduce new mechanisms retrospectively, from January 1, 2022,” he notes.
Face Value Benefits
As to the impact of the new tax reform, Plutowski and Komorowska are cautiously optimistic. Overall, “the main benefits of the Polish Deal 2.0 are associated with a significant simplification of regulations, the introduction of more understandable and transparent procedures,” Komorowska says. Plutowski agrees, noting that it might still “have a positive impact on its ‘target groups’,” even though the scope of the Polish Deal 2.0 is rather narrow, as it only “addresses individuals, small businesses, i.e., sole proprietors, and some types of partnerships that settle tax obligations via PIT.”
Both Plutowski and Komorowska feel that the Polish Deal 2.0 introduces some major improvements in different areas. According to them, the main positives are primarily related to the reduction of the PIT rate for the first PIT bracket – from 17% to 12% – canceling the so-called “allowance for the middle class,” maintaining the tax-free income at PLN 30,000 and the first taxation threshold at the increased level of PLN 120,000, reversing the preferential scheme of taxation for single parents on the terms applicable in 2021, and restoring the partial deductibility of health security contributions.
A Maze of Regulations
But the benefits highlighted above do come with a cost, with Plutowski, for example, pointing to the Polish Deal 2.0 “keeping the new taxes or tax-like burdens imposed on businesses by the original Polish Deal 1.0,” such as the minimum tax, and “further imposing restrictions to debt financing, limitations on financing from related parties for capital transactions, depreciation disallowance for apartments acquired before 2022 for renting and/or sub-renting purposes, and new requirements for maintaining neutrality for restructuring transactions, such as M&As and share exchanges.”
“There will still be a group of taxpayers who will not benefit from the amendment, and their monthly remuneration compared to what they received in 2021 will continue to be lower,” Komorowska adds.
On top of that, according to Komorowska, “the new regulations will apply to the entire 2022, and the annual PIT settlement for 2022 will need to be prepared.” She believes that “the PIT settlement for 2022 may turn out to be a real challenge, as a result of numerous and shortly introduced amendments to the PIT Act over the last couple of months.” Ultimately, she says, “the correct calculation of employees’ net remuneration and taxes in 2022 may require efficient navigation in the maze of complex regulations.”
“But that is not all,” Komorowska continues. “Companies should also start preparations for the year-round process of settling employee PIT in 2023. The scale of the changes is so wide that their effects may reach every group of individuals employed in the company.” In this context, “it is worth considering PIT tax reviews and Social Insurance Institution (ZUS) settlements, the audit of payroll systems, and the training of teams responsible for payroll processes, in order to prepare the organization as effectively as possible for the PIT settlement for 2022,” she notes.
With all that in mind, Komorowska says that most taxpayers are still likely to benefit from updated regulations, and “their monthly net salaries are expected to be higher compared to the period from January 1, 2022, to June 30, 2022.” However, since the laws were only voted on by parliament very recently, “they still have to be carefully analyzed before we can speak with confidence about any positive impacts,” Plutowski concludes.
This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.
