The Polish Deal – how will the tax-free amount and tax thresholds change?

The so-called Polish Deal (Polski Ład) amendment has been in the headlines of articles on every major industry site for several months. Last Friday, on October 1st, the said amendment was passed by the Parliament, from where it goes straight to the Senate. The expected date of entry into force of the entire package of changes under the collective name of the Polish Deal is January 1st, 2022.

Since the thematic scope of the amendment is extremely extensive, this article presents only selected provisions – concerning the tax-free value and the new tax threshold amount, beyond which the highest tax rate becomes applicable.

According to the financial forecast of the Ministry of Finance, the changes described below are to generate savings of around 16.5 billion PLN in the following year.

The PIT tax-free value

The amount of the tax-free sum varies depending on the annual income of the given taxpayer, and thus, the tax rate to which the taxpayer is classified. Also, it only applies to taxpayers who settle with PIT-36 or PIT-37 assistance.

The final value of the exempt amount is also affected by tax reliefs and additional components, such as:

• social security contributions,
• donations (i.e. for the fight against the COVID-19 pandemic, for honorary blood donors, for vocational education, for public benefit organizations, etc.),
• rehabilitation relief,
• relief for the Individual Retirement Security Account,
• relief for research and development.

The law introducing the provisions of the Polish Deal modifies the upper limit of the tax-free amount, increasing it to 30,000 PLN when qualifying for the first tax threshold (17%). It will be possible thanks to the increase in the amount reducing the tax to 5,100 PLN.

The upper limit of the free amount in recent years have developed as follows:

• 2009-2016 – 3,091 PLN
• 2017-2018 – 6 600 PLN
• 2018-2021 – 8,000 PLN
• from 2022 (when the act enters into force) – 30,000 PLN

Changes in the tax-free amount have been widely expected in Poland for several years. Compared to other European countries, Poland currently classifies in the lower tiers of the ranking – with the tax-free amount of 8,000 PLN.

The new tax-free limit will bring Poland closer to countries such as Slovenia (approx. 30,000 PLN), the Czech Republic (approx. 29,500 PLN), or Denmark (approx. 28,000 PLN), which means close to the European average.

Polish Deal – tax threshold increased to 120,000 PLN

The Polish Deal amendment introduces a very important change that will surely encourage entrepreneurs to rethink their tax strategy for the coming years. Namely an increase in the income threshold from which the highest tax rate (32%) will apply to the amount of 120,000 PLN.

Again, as in the case of increasing the tax-free PIT amount, this is a change that will bring Poland closer to the European standard in this aspect.

According to the announcement of the Ministry of Finance: incomes are subject to the 32 percent rate, will apply only to those obtained above 120,000 PLN. For each 1 PLN from the amount of 120,000 PLN, the tax will amount to 32 gr, and for amounts between 85,000 and 120,000 PLN – 17 gr instead of the previous 32 gr.

From 2022, taxpayers conducting business activities with incomes exceeding the highest threshold should reevaluate whether the new tax scale rules may prove more profitable for them than the flat (linear) tax. An important change in this context is also the transition from the flat-rate model of health insurance contributions to models with a fixed threshold, which, under the Polish Deal, is to amount to 9% of net income.