The New Polish Order – changes in taxation
The New Polish Order – changes in taxation
The key element of the New Polish Order is the introduction of a wide package of changes in taxation. According to the information that were published on the website of the Ministry of Finance, the said changes cover the reform of the tax system, support for innovation and stimulation of investment and development.
1.Tax wedge reform
As part of the New Polish Order, the Ministry of Finance projects several changes regarding the taxation of personal income.
The most important changes are as follows:
– increasing the tax free amount from PLN 8,000 to PLN 30,000,
– increasing the second tax threshold from PLN 85,528 to PLN 120,000,
– relief for the middle class – will concern individuals employed on the basis of an employment contract and earning an annual income between 70,000 and 130,000 PLN. As a result of the relief, the reform will be neutral for taxpayers employed on the basis of an employment contract with an income between PLN 6,000 and PLN 11,000 per month,
– elimination of possibility to deduct health contribution from tax (7,75%),
– liquidation of lump-sum health contribution for entrepreneurs – health contribution will be calculated proportionally to the income without the possibility of deducting it from the tax,
– zero PIT for individuals working after reaching the age of retirement.
– Relief for Poles returning from emigration – starting with 2022 they will be able to indicate in their tax returns a taxable amount lower by PLN 50,000,
– changes in spousal joint settlement – they will be able to settle their accounts together already in the year of formalizing their marriage.
- Tax Reliefs for Innovations
2.1 Tax Relief for R&D and IP Box
Currently entrepreneurs can use the relief for research and development (R&D) and IP Box. Starting with January 2022, they will be able to benefit from them simultaneously, within the same production process.
2.2 Prototype Tax Relief
The prototype tax relief applies to any company that develops a new product that has not been available on the market yet. The prototype tax relief will be available not only for projects such as the construction of a hybrid train, but also for a product that is innovative on a company scale and has not been on the market before.
The tax relief for prototypes will allow the companies to deduct from the tax base an additional 30% of the expenses that are incurred due to the production (but not more than 10% of the income).
2.3 Industrial Robotization Relief
The industrial robotization tax relief will be available to any companies that are planning to improve their production by using industrial robots.
It will allow to deduct from the income an additional 50% of the costs incurred due to the purchase of the robots and expenses related to their installation, purchase of software necessary for their operations and appropriate training of employees.
The right to use the relief will be granted to the company that buys and installs an industrial robot, i.e. a machine imitating the movement of a human hand, performing movement in several axes, programmed.
2.4 Tax Relief for the Employment of Innovative Employees
The tax relief will be applicable to companies that carry out research and development projects and employ workers to carry out such projects.
The condition to use the relief will be as follows:
-the employee has to be involved in R&D activities,
-the employee must have a university degree or a chosen professional title.
Entrepreneurs who will use the relief in order to support the innovative employees and are taxpayers, will have the right to reduce the advance on income tax deducted from the income (revenues) from the employment relationship or civil-law contracts obtained by the said innovative employees.
3 Support for expansion and development of companies
3.1 IPO Tax Relief
The New Order provides entities entering the stock market and investing in IPOs with the introduces a tax relief.
The tax relief will allow for:
– inclusion in the tax bill of 150% of the expenses directly related to the IPO (for the preparation of the prospectus, notary fees, court fees, stamp duty and stock exchange fees, and for the preparation and publication of announcements required by law);
– 50% of additional deduction of expenses spent on advisory, legal and financial services, directly related to the issue (max. 50,000 PLN, VAT excluded).
Individual investor relief consisting in renouncing the obligation to pay tax on the profit from the sale of shares purchased under the IPO, provided that the shares are retained for 3 years.
3.2 Venture Capital Tax Relief
One of the key elements of the New Order are preferences in taxation regarding investing in start-ups through Venture Capital funds. After the changes are made, the investor will have the right to deduct part of the investment amount from their income at the very beginning.
3.3 Consolidation Tax Relief
– will be directed at taxpayers who want e.g. to rescue a company from an unfavourable financial situation by taking it over,
– It will work similarly to Research & Development relief,
– expenses connected with taking over another company, which are tax deductible, will also be deducted from the income,
– applies to expenses that are incurred directly due to the acquisition of shares in a capital company,
3.4 Expansion Tax Relief
The Ministry of Finance also reaches out to companies that want to expand their business and seek out new markets. The tax relief will apply to expenses that are incurred in order to increase the products sales. As a result of the proposed relief, the expenses for business expansion will be deductible twice – once as tax deductible costs and the second time as a tax deduction relief (even up to the amount of PLN 1 million).
3.5 New Estonian CIT
The most important difference for entrepreneurs will be the elimination of three out of five conditions for entering the Estonian CIT system:
– the income limit, which excluded larger entities from the Estonian system, will be eliminated,
– the possibility to use this form of taxation will be extended to three more types of legal forms of business such as limited partnerships, limited joint-stock partnerships and cooperatives
– the minimum volume of investments will be eliminated,
Only two existing conditions will remain intact:
– restriction of the shareholders group to natural persons and lack of a multi-level structure,
– generating the majority of revenues from operating activities and employing a minimum.
Effective taxation, i.e. the combined PIT from CIT is currently at Estonian CIT:
– 25% for small taxpayers,
– 30% for larger CIT taxpayers.
Nevertheless, these rates can be reduced by 5 p.p., to 25% and 20%, respectively, if the taxpayer increases investments by at least 50% over a period of two years or 110% over a period of four years.
After the changes are made, this rule will not no longer apply to a small taxpayer. Therefore, in its case, effective PIT and CIT taxation will always be 20%, regardless of the volume of investments.
For large taxpayers, who will choose the lump-sum taxation, the current possibility to show the increased investment in the two-year periods will remain intact. However, the reduced effective taxation of 25% will apply not only to the period after exiting Estonian CIT as it has been so far, but also to the period of remaining in Estonian CIT.
3.6 Creation of VAT Groups
The Ministry of Finance also proposes a wide package of changes in taxation in order to stimulate investment and development. The New Polish Order will introduce the possibility of creating VAT groups, which Poland has not used before.
Such a solution will allow businesses to manage input tax and refunds of this tax, which is projected to have a positive impact on cash flow within the entire structure.
Benefits of a VAT group:
– better cash flow,
– One collective JPK_VAT for the group instead of separate JPK_VAT submitted by individual companies,
– No intra-group invoices,
– No MPP and whitelist verification,
– less risk of control,
– VAT group treated as a reliable taxpayer,
– economic neutrality of the turnover.
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