New Deal, new tax rates, new tax traps!
December 17, 2021
What an IT programmer should know before 1.1.2022?
- IT programmers who are employed will mostly benefit from tax cuts
- IT programmers who work on B2B basis should cautiously choose from one of available taxation forms
- Final tax burden depends on multiply factors and is not a matter of simple comparison of tax rates
- IP-Box is not always the most suitable solution to lower taxation
Polish New Deal? What is it?
The Polish Deal (PL: “Polski Ład”) is a package of changes to taxation rules that commence from 1.1.2022. According to government estimates 90% of people employed in Poland should be fully exempt from personal income tax or their tax burden should be significantly lower. On the other hand, tax burden of high revenue individuals and persons running their own businesses (B2B) will increase.
I am employed! How does this affect me?
If you are employed as an IT programmer, the new tax regulations will have an impact on you, and there is not much you can do about it, but you do not need to worry. You will be likely happy to discover that your paycheck increased due to a higher tax-free amount (PLN 30 000) and higher income tax bracket to enter a 32% tax rate (PLN 120 000). It means you will not pay any personal income tax for the first earned PLN 30 000 and only 17% of tax from amount above PLN 30 000 up to PLN 120 000. A tax-free amount can be even higher if you are married (PLN 60 000).
I am a one-person company and issue B2B invoices!
If you are registered as a solo entrepreneur, you will have a choice between following taxation options:
- 17/32% progressive rates
- 19% flat rate
- 5% IP-Box on 17/32% progressive rates
- 5% IP-Box on 19% flat rate
- 12% lump sum on revenues
- 8.5% lump sum on revenues
While above is already enough to give you a headache, the tax rates themselves are not a good indicator of your final tax burden. It also depends on factors such as:
- Amount of revenue
- Amount of business expenses
- If you are married and how much your spouse earns and if you have children
- Kind of IT services you provide
- Possibility to apply a preferential tax rate of 5% for IP-Box
- Health care contribution rates
As a result, there is no one simple solution that fits all. Taxation differences between these different solutions are enormous and you should make sure you choose the right option before 20th February 2022.
Let’s say your gross revenue is PLN 20 000 a month.
You have a stay-at-home spouse, business expenses of PLN 2500 monthly.
With 19% flat rate your tax + social contributions will cost you PLN 3 983 monthly,
The same scenario with 17/32% progressive rates – PLN 3483 monthly,
Application of 12% lump sum – PLN 2822 monthly.
Can I apply 8.5% tax lump sum rate?
This depends on characteristics of your work. For the work which is considered as an IT service but is not programming work, you can apply 8.5% lump sum rate. These services include; revenues obtained from the provision of services related to the design and development of information technologies for computer networks and systems; code testing, business analysis, scrum master, product management, etc. It is also accepted that the programming part of you work is taxed with 12% lump sum rate and the other part of it is at 8.5%. In any case, we strongly recommend applying for an individual tax ruling to make sure that the lower rate can apply for the services you provide.
It does not concern me!
I apply IP-Box special 5% rate on all my revenues. Well, while this may be a good solution for some of IT specialists, it is not always the case. An IP-Box preferential rate is not an out of the box solution. Application depends on several strict conditions; it should be confirmed by tax authorities in form of individual tax ruling, and you need to remember to maintain an ongoing tax documentation. If in case of a tax audit, authorities question correct application of IP-Box you need to pay the regular tax rate (17%/32% or 19%) backwards plus interest. This is specially to consider now, with new decreased 12% (or 8.5%) lump sum tax (compared to 15% in 2021), which does not require any of above effort and is a relatively risk free solution. A final decision should also depend on amount of revenue and possible tax benefit. Naturally, the higher the tax benefit the more it offsets the tax risk. Nonetheless, the effort and the risk factors should always be considered.
What do I do now?
Make sure you run a simulation of your taxation for 2022 and choose a most favorable option before February 20th, 2022. Taki into account at least factors that were outlined above. If feel like you need assistance in matter, we are always ready to help.
* average monthly salary in the enterprise sector in the fourth quarter of the previous year, including payments from profit, announced by the President of the Central Statistical Office in the Official Journal of the Republic of Poland “Monitor Polski