On 01 October 2019, the amended provisions of the Personal Income Tax Act came into force in Poland, changing the tax rate from 18% to 17%. Under the amendment, the statutory deductible cost of earning income has more than doubled, and the amount of tax credit has been trimmed. What does it mean in practice?
The lower tax rate applies to the taxpayers who fall into the first tax bracket. The new, lower tax rate of 17% (previously 18%) applies as of 01 October 2019. On the other hand, the 32% rate applicable to income in excess of PLN 85,528 has remain unchanged. Moreover, there has been a more than two-fold increase in the standard statutory deductible cost of earning income – up to PLN 250 (previously PLN 111.25) and in the increased statutory deductible cost of earning income – up to PLN 300 (previously 139.06). There has also been a change in the amount of tax credit, down to PLN 43.76 (from PLN 46.33), and double tax credit, down to PLN 87.52 (from PLN 92.66). These changes apply to both workers under contracts of employment and those with contracts of mandate.
Changes in personal income tax
- 17% tax rate (previously 18%);
- 32% tax rate on income in excess of PLN 85,528 (no change);
- Standard statutory deductible cost of earning income amounting to PLN 250 (previously PLN 111.25);
- Increased statutory deductible cost of earning income amounting to PLN 300 (previously PLN 139.06);
- Tax credit amounting to PLN 43.76 (previously PLN 46.33);
- Double tax credit amounting to PLN 87.52 (previously PLN 92.66);
Changes in personal income tax:
|Legal status up to 30/09/2019||Legal status as of 01/10/2019|
|Standard (single contract of employment) PLN 1,335.00 per year||Standard (single contract of employment) PLN 3,000 per year|
|Increased (single contract of employment, long-distance commuters) PLN 1,668.72 per year||Increased (single contract of employment, long-distance commuters) PLN 3,600 per year|
Because these changes are coming into effect in the course of the fiscal year, the legislator has provided for a tax rate of 17.75% in the tax scale for 2019, which is a product of the rates applicable in 2019, i.e. nine months with the tax rate of 18% (January to September) and three months with the tax rate of 17% (October to December). The 17.75% rate applies to individuals who earned their first income in the fiscal year between October and December, for instance starting work or returning from parental leave, having earned no income between January and September. Under the amendment, employees may submit a statement to their employer regarding the applicability of the 17.75% tax rate.
The employee’s gain resulting from the tax rate reduction from 18% to 17% and increasing the statutory deductible cost of earning income from PLN 111.25 to PLN 250.00, amounts to PLN 54.00. Labour costs remain unchanged (no effect on the amounts of the employer’s ZUS contributions).
How will PPK impact on employee remuneration?
The PPK system (Pracownicze Plany Kapitałowe – Employee Capital Plans), introduced as of 01 January 2019, is a system of voluntary long-term savings, intended to improve the financial security of the Polish people. PPK contributions are paid by both employers and programme participants. The basic contribution amounts to 2% of the remuneration (the amount used as an assessment basis for pension insurance contributions) from the programme participant – the employee, and 1.5% of the remuneration (assessment basis for pension insurance contributions) from the employer.
The net remuneration of the employee who has joined an Employee Capital Plan – even after allowing for the lower tax rate and double statutory deductible cost of earning income – will be reduced. Why? According to the amended personal income tax law, PPK contributions financed by the employer are treated as employment revenue, affecting (decreasing) the amount of remuneration transferred into the employee’s account. The employer’s contribution to PPK is a cost to the employer, hence labour costs go up by the percentage of the contribution.