The Ministry of Finance has presented a draft of a comprehensive tax reform, implementing the announcements included in the “The New Economic Polish Deal”.
From the perspective of employment costs in the broad sense of the term, the most important changes for companies employing highly qualified managers relate to the rules of taxation and the amount of health insurance contributions for self-employed individuals, as well as changes in the remuneration of managers of capital companies that do not have a contract with the company. These key changes are summarized below:
Healthcare contribution - abolition of lump-sum contribution for the self-employed
The most important change will concern individuals conducting business activity, the so-called self-employed individuals. Until now the self-employed used to apply a lump-sum healthcare contribution (currently PLN 381.81/month).
In the “Polish Deal” program, the government envisages introducing a single healthcare contribution, calculated proportionally to income. The basis for calculating this contribution will be the actual income of the entrepreneur. The contribution will be 9% of income – as in an employment contract. For persons with little or no income, a minimum flat rate contribution is to be introduced.
The above change in the nature of the health insurance contribution from a lump sum to an income-based percentage will in practice cause the 19% flat rate tax to become a fiction, because a self-employed person will de facto pay 28% tax (plus other ZUS contributions) and will thus incur a pay cut in real terms.
Health care contribution - no tax deduction
The possibility of deducting the health insurance contribution for tax purposes is to be excluded for all: employees and the self-employed.
On the other hand, the health insurance contributions paid during a year can be partially deducted in the annual PIT declaration from the tax amount (7.75% of the basis of the contribution assessment is subject to deduction). As a result of the planned changes, it will not be possible to deduct the health contribution from the tax due.
Lower healthcare contribution for entrepreneurs on a lump sum basis
The registered lump sum is a simplified form of taxation of business activity. Entrepreneurs using this form of settlement pay tax on revenue, thus they are not allowed to reduce tax by the costs of its acquisition. In the case of entrepreneurs who settle accounts in this manner, the healthcare contribution will be calculated on the basis of their income. The contribution will be calculated in the amount of 1/3 of the lump sum from registered income used for taxing that income. For example: an entrepreneur taxed at a 15% flat rate will pay a healthcare contribution of 5% of his income, so his burden will increase to 20%. Additionally, the contribution assessment basis for a given month cannot be lower than the applicable minimum wage.
In 2021, flat-rate taxation on registered income may be applied, among others, to: natural persons earning income from business activity, whose income in the previous tax year did not exceed the statutory limit (EUR 2 million). Taxpayers who practice freelancing may benefit from the flat-rate taxation if they perform them personally, i.e. without employing third parties on the basis of employment contracts, mandate contracts, contracts for specific work or other contracts of a similar nature, and the revenue earned by them last year did not exceed the equivalent of EUR 2 million. At present, no changes are planned in this respect.
Healthcare contribution on remuneration of a management board member
Most of the changes described above have already been presented to the public, with the rules regarding remuneration of managers of limited liability companies being a definite novelty.
Under Article 13 of the draft, the obligation to pay the 9% healthcare contribution also applies to persons employed solely on the basis of appointment (e.g. as members of the management board of a limited liability company who receive remuneration for their position without any additional employment contract or managerial contract).
Currently, it depends on the parties whether a member of the company's governing bodies, after being appointed, will enter into an employment contract with the company, a managerial contract, or whether the basis for payment of his remuneration will be exclusively a resolution of the supervisory board or shareholders meeting. Due to the possibility of being appointed to many boards, companies and managers often decide to pay remuneration to the manager only under a resolution. In this case, managers paid PIT on their earnings at the tax scale of 17 or 32% ‒ now the amount charged to managers will be 9% higher.
Major tax changes
The government plans to raise the tax-free allowance from PLN 8,000 to PLN 30,000. It will only apply to income that is taxed according to the scale (not those who pay flat rate tax).
The first tax threshold amount is to rise from PLN 85,000 gross to PLN 120,000 gross. The PIT rates will remain unchanged at 17% (under PLN 120,000 gross) and 32% (over PLN 120,000 gross). In practice, this means lower PIT for some employees and individuals working on contracts of mandate.
The project provides for the introduction of tax relief for people who earn income from an employment relationship in the broad meaning of the term. The relief will not be available to persons who earn revenues from civil law contracts or activities performed in person. It is to apply only to people whose income ranges from PLN 68,412 to PLN 133,692 per year (PLN 5,700 - 11,140 per month). In practice, the tax relief is intended to make it possible to compensate for the loss caused by the abolition of the possibility of deducting the health insurance contribution.
The draft of July 26, 2021 provides for changes to 22 different legal acts. The draft is in the public consultation stage, which will last for five weeks, until 30 August 2021. In principle, the draft is planned to take effect in January 2022.