Poland – further tax amendments for 2022
We first learned of major tax reform in Poland in 2021. At that time, the government announced the so-called “Polish Deal” effective for the 2022 tax year.
Highlights of the key individual tax provisions were:
- Repeal of tax credits for a personal allowance and health insurance premiums.
- Two income tax brackets of 17% up to PLN 120,000 of taxable income and 32% over that threshold.
- A middle-income tax-free allowance of PLN 30,000 that applied only for taxpayers with income ranging from PLN 68,412 to PLN 133,692 using a complex formula to apply because taxpayers with incomes over the threshold are not eligible. This causes a bubble in the tax computation and created taxpayer confusion.
- Tax relief for individuals returning to Poland. Qualifying taxpayers excluded 50% of the regular tax for the year of transfer and 4 next years. There was also a tax amnesty offered to repatriating Polish nationals with undeclared income and assets.
Since enactment, there were further discussions in Poland to adjust and amend the new tax law. The proposals were adopted by the Parliament on May 12, 2022, with many provisions retroactively effective to January 1, 2022.
The key changes of interest to Global Mobility are:
- The tax concession for repatriating Polish nationals has been expanded. Qualifying individuals who transfer the tax residence to Poland after January 1, 2022, will be exempt from tax in the year of transfer and 4 consecutive years, on the first PLN 85,528 of employment income. The expected tax amnesty originally planned will likely be repealed as it was quite unpopular.
- Several tax concessions intended to promote investments in Poland, including:
- High net worth individuals (HNWI) who transfer their tax residence to Poland and make qualifying annual investments in Poland of PLN 100,000. Under this concession, the HNWI’s non-Polish income is subject to an annual flat tax of PLN 200,000 regardless of the source and amount of the foreign income. The regime is limited to 10 years.
- Individual entrepreneurs investing in qualifying activities in Poland are entitled to deduct 50% of qualifying expenses from taxable income. Qualifying investments include activities for development of science and higher education as well as supporting cultural and sport activities such as sport and school grants, the activities of art academies and public art schools, and sport events.
- Special tax treatment for investments in ‘Alternate Investment Companies’ allowing a 50% deduction up to PLN 250,000 for investments held at least for 2 years.
- Exemption from capital gains tax on qualifying Initial Public Offering shares if the shares are held for a minimum of 3 years. Otherwise, the capital gains are taxed at a flat rate of 19%.
- The tax rate for the middle bracket of income will be reduced from 17% to 12%. The first bracket is 0%, reflecting a tax allowance on the first PLN 30,000 of taxable income.
- The middle-income tax-free allowance will be abolished. Consider this change a technical correction as the implementation of the allowance was complicated. The tax-free allowance also was controversial and determined ineffective as taxpayers with certain nonemployment income could not use it. To compensate for abolishing the middle-income allowance, the lowest tax rate was dropped from 17% to 12%.
- Single parents with qualifying minor children are allowed to compute their tax on a concessionary basis – computing the tax on 50% of their income and then multiply the result by a factor of 1.5.
- These tax amendments were passed by the Parliament and have been sent to the Poland Senate. It is expected to become law by July 1 and will be effective retroactively to January 2022. There will be a transitional rule for 2022 to supplying a tax refund for those taxpayers who would have been better off using the 17% rate and the middle-income allowance instead of the 12% rate. We expect most taxpayers will be slightly better off using the 12% rate without the allowance.
The amendments to the so-called Polish Deal are the result of public consultations with the goals of reducing tax on lower income taxpayers and supplying incentives intended to promote Polish investments.
Global mobility managers will want to consider the impact of these changes on hypothetical tax calculations for Polish outbound assignees, and update assignment cost projections for Polish inbound assignees.
AIRINC is currently updating our Poland tax data to reflect these amendments. More tax questions?
Thank you to Magdalena Olejnicka of International Bureau of Fiscal Documentation (IBFD) who helped compile this update.