By: Miłosz Saramak
What important change in Polish tax regulations is worth paying attention to?
The last months of 2021, for many of the largest companies on the Polish market, were a time associated with the implementation of a new obligation requiring the preparation of a Tax Strategy and its publication on the company’s website. Under the regulations introduced in January 2021, any company exceeding the threshold of EUR 50 million in revenue is required to publish such information. The very concept of tax strategy is based on the solution developed within the OECD and already functioning in such jurisdiction as the United Kingdom. The main goal of this regulation is to provide citizens with information about the tax rules followed by the largest market players within the so-called social tax control. It is supposed to be an element of their corporate social responsibility and increased transparency. In reality, the tax strategy document itself should contain information about the company’s tax governance, implemented tax policy and adopted tax procedures. It should refer to the issue of appetite for tax risk, describe the level of involvement of management bodies in tax decisions, and the issues of relations with tax authorities. Thus, in practice, the implementation of a tax strategy generates work related to a comprehensive review of the company’s tax compliance and the identification of possible areas for completion. The companies that have a classic fiscal year (coinciding with the calendar year) are required to post information on its implementation on their website by December 31st, each year. What is important is that failure to comply with the imposed obligation entails the possibility of imposing sanctions on the company in the amount of 250 thousand zlotys (approximately $62,500).
What tax changes in the near future will be crucial for doing business in Poland?
Undoubtedly, one change that will have a significant impact on entrepreneurs operating in Poland is the so-called “Polish Deal”. This is the term used to describe the sweeping changes to the tax system which were passed in November by the Polish Parliament and endorsed by the government as part of the country’s new tax policy, shifting more of the tax burden onto top earners. The package includes changes related to VAT, CIT, PIT and transfer pricing.
The main assumptions of this change according to their authors are:
- creation of a tax “fair play” – i.e. changes that will touch on a more egalitarian distribution of tax burdens within the framework of settlements of individuals as well as costs calculated by the employer;
- introduction of solutions that will enable economic restart in the pandemic period – i.e. a package of reliefs and incentives;
- leveling the playing field for market players by further tightening the tax system.
The flagship changes, which are the most frequent element of press comments, include increasing the health contribution and linking it to personal revenue, which in practice, especially for sole traders, means a reduction in the amount of net salary. Also, members of management boards will now be subject to the obligation to pay the health contribution. A number of solutions have been introduced, sanctioning employers for employing workers illegally or concealing the correct amount of income from work.
As a positive incentive, the Polish Deal provides bonuses for implementing innovative solutions in a company. The amount of benefits under the research and development relief, which allows to deduct costs related to research and development processes from the tax base, will be increased. A new type of allowance is introduced – the prototype relief – providing for the possibility of additional relief related to the commencement of trial production or market launch of a new product. Similarly, in the case of expenditures on production automation, a new relief for robotization will be available.
The scope of the changes within the objective of sealing the tax system touches practically every sphere of taxation, introducing new regulations within such areas as withholding tax, transfer pricing or the possibility to impose VAT on financial institutions.
The introduced changes are the most extensive changes to the tax system in Poland since the system transformation in the early 1990s. The more critical voices focus on the express pace of the adoption of the regulations and their entry into force two months after their final adoption by the parliament. Many entrepreneurs report a high level of confusion in understanding the new regulations and insufficient time to adapt, for example, IT systems to the new methods of calculating individual taxes. Some of the criticism also points to the fact that the changes, which were supposed to make it easier for businesses to gain momentum in a post-pandemic reality, to a large extent require a massive effort to implement them and impose new obligations.
Nonetheless, the Polish Deal entered into force on January 1st, 2022. The first few weeks of its introduction are marked by a common confusion of how to apply new rules to calculate workers’ salaries. The general media response is dominated by critical articles suggesting the “New Order” is far from bringing an actual order for the business environment.
For questions regarding Polish tax regulations for your business, contact us.