Polish Order – changes to PIT from 1 January 2022

On 1 October, the Sejm passed the amendment to tax laws that implement the solutions of the Polish Order. In this note, we present the most important changes to PIT taxation.
The amended laws are to enter into force from 2022 (with some exceptions). Now the law has been referred to the Senate and will be dealt with at the end of October.

Polish Order

1. Changes to tax-free amount and income threshold

The tax-free amount of PLN 30,000 will be introduced for all taxpayers whose income is subject to taxation according to the progressive tax scale, including entrepreneurs (there is no tax-free amount for entrepreneurs whose income is taxable with flat rate). Currently, tax-free amount is progressively decreasing and no longer applies to income above PLN 127,000 per year. The change will also have an impact on the tax-reducing amount. Currently, the tax-reducing amount is PLN 43.76 per month. If the planned changes come into force, this amount will be PLN 425 per month.

The 32% rate will apply to income over PLN 120,000 per year. Currently, it is PLN 85,528. After the change, a tax rate of 17% will be applied to the tax base not exceeding PLN 120,000. Only the surplus over this amount will be taxed at the rate of 32%.

2. Health insurance contribution will no longer be deductible

Now, the majority of health insurance contribution is tax-deductible (7.75% of the assessment base). As a result of the planned changes, the health insurance contribution will become non-deductible regardless of the form of taxation.

In order to avoid a situation in which some taxpayers who pay 17% tax will lose as a result of this change, the so-called middle class relief was introduced thanks to which lack of possibility to deduct the health insurance contribution will not increase taxes paid by people with income from PLN 68,400 up to PLN 133,600. Pursuant to the law, the middle class relief will be available to those employed under employment contracts as well as entrepreneurs whose income is taxed according to general taxation rules.

3. Changes to assessment of health insurance contribution

The amount of the health insurance contribution for people whose income is subject to the tax scale will not change - it will be 9% of the income without the possibility of deducting part of it from tax. However, the amount of the contribution will change for firms that settle tax in a simplified way, i.e. those that opted for a flat-rate tax of 19%, lump sum or tax card.

Flat-rate tax payers will pay 4.9% of their income (minimum PLN 270 per month). For those paying a lump-sum tax, thresholds will apply - for firms with annual revenues up to PLN 60,000, it will be 9% on 60% of the average salary; for firms with revenues from PLN 60,000 to PLN 300,000 - on 100% of the average salary, and for firms with revenues over PLN 300,000 - on 180% of the average salary. For those whose income is taxable with tax card, the health insurance contribution will be calculated not on the average salary, but on the minimum salary (it will amount to PLN 270).

4. Health insurance contribution on board members remuneration

The law introduces the obligation to pay health insurance contributions on remunerations of persons appointed to perform functions under the act of appointment (so far, such remuneration was not subject to health insurance contribution).

5. Only lump-sum taxation for occasional lease

The amendment eliminates the possibility of taxing the income derived from lease in accordance with general taxation rules (except when such income is derived as part of non-agricultural economic activity). Occasional lease will be taxed only as a lump sum on registered income (8.5% rate for income below PLN 100,000 per year and 12.5% on the surplus over PLN 100,000). The introduced change would make it impossible to reduce the tax base by apartment-related costs such as depreciation, interest on loan, utility charges, purchase of equipment, renovations etc.

The introduction of the above changes in taxation of lease of apartments and buildings was postponed until 1 January 2023. According to the passed amendment, in 2022, taxpayers will still be able to apply the current taxation rules (general rules).

6. Reduced lump sums on registered income

The law introduces a reduction of the lump sum on registered income for persons performing specific medical professions to 14% and for some revenues related to the provision of certain services in the IT sector to 12% (previously 15%).

7. The return relief

Pursuant to the law, the relief will take the form of a tax exemption. It will be available to taxpayers who previously did not have tax residence in Poland for at least 3 years and now decide to transfer their tax residence to Poland. If they meet additional conditions, their income derived from:

  • a service relationship, employment contract, outwork or co-operative employment relationship,
  • a contract of mandate, or
  • non-agricultural business activity (taxed with PIT according to the tax scale, flat-rate tax or lump-sum on registered income)

will be exempted from tax.

It is important that tax-exempt income may not exceed PLN 85,528 per year. If a taxpayer benefits from the youth relief and the return relief, the sum of income exempt from tax under both reliefs also cannot exceed this amount.

The taxpayer will be entitled to exemption for 4 consecutive years. It is the taxpayer who decides in which year they want to start to apply the given relief, i.e. whether in the first year after moving to Poland (i.e. after obtaining tax resident status) or in the following year.