Polish authorities passed a raft of measures related to personal and corporate income tax aimed at alleviating the impact of COVID-19 pandemic. The goal behind the new regulations is to encourage active support of the fight against the pandemic, but also to reduce the tax and insurance burden on a specific group of taxpayers.
Donations to counteract the COVID-19 pandemic
Under the amended PIT provisions, taxpayers may now deduct their income by the amounts donated toward COVID-19 response efforts. This relates mainly to donations made to healthcare providers engaged in counteracting the pandemic, but also to centres for single mothers with underage children and pregnant women, night shelters, shelters for the homeless, social assistance centres etc. The amount of the deduction depends on the date on which the donation was made. For donations made from 1 October 2020 to 31 December 2020, an amount corresponding to 200% of the donation may be deducted, for donations made from 1 January 2021 to 31 March 2021, an amount corresponding to 150% of the donation may be deducted, while for donations made from 1 April 2021 until the end of the month in which the state of epidemic is revoked, an amount equal to the value of the donation may be deducted. The relevant provisions in their current wording do not provide for a deadline of the deduction application. In fact, the donation can be deducted not only in the annual settlement, but also at an earlier stage, when calculating the tax advance due for the month in which the donation was made. Importantly, the amount of donations made to counteract the COVID-19 pandemic may exceed the cap of 6% of taxable income, set on other donations, e.g. those made to public benefit or religious organizations.
Increased limits on objective tax exemptions
Another change brought by the Anti-Crisis Shield regulations is an increase in limits of employees' benefits exempt from public-law liabilities, in particular in form of financial aid. The amount of the special assistance benefits paid out in connection with a fortuitous event, natural disaster, long-term illness or death, financed from sources other than the Social Fund, the Company’s Social Benefits Fund or trade union funds, which is covered by tax exemption, was increased from PLN 6,000 to PLN 10,000. The amount of the exemption for other allowances increased from PLN 1,000 to PLN 3,000. Moreover, the limit of benefits for employees' welfare, paid out from the Company’s Social Benefits Fund or the trade union funds increased from PLN 1,000 to PLN 2,000. Furthermore, the threshold applicable to subsidies for holiday, stay in health resorts, rehabilitation and training facilities, as well as stay in treatment and care facilities was increased from PLN 2,000 to PLN 3,000. The introduced changes are temporary and will remain in force until the end of the tax year following the year in which the state of epidemic is revoked in Poland. The amendments are likely to significantly contribute to diminishing tax burdens, however, it is evident they are directed only at a specific group of employees. In fact, the increased thresholds will not have any influence on the situation of employees who do not use the benefits offered by the employer along with other forms of funding. Importantly, the amendments relate solely to the caps set on the amounts of benefits and not to the rules based on which they are granted. Perhaps it would be more reasonable to introduce solutions allowing for income tax exemption on benefits paid to a wider group of employees, e.g. to make up for increased labour expenses incurred through remote work, as it often happens that work from home generates supplementary costs, stemming from electricity consumption, arranging the working space etc.
Exemption from the obligation to pay ZUS contributions
One of the amendments that seem of key importance to business in times of the COVID-19 pandemic is the exemption from the obligation to pay social security and health insurance contributions. Currently, the exemption applies to the contributions due for July, August, September and November 2020. Importantly, it may be used only by entities performing certain business activities, at least in theory, most affected by the pandemic and the resulting economic crisis. Moreover, the exemption is targeted at entrepreneurs who run registered business activity long enough and whose revenues have decreased accordingly due to the pandemic. The exemption may be applied for to ZUS (Polish Social Security Administration) starting from 30 December 2020.
Deferred advance payments for income tax
Another measure aimed alleviating the impact of the COVID-19 pandemic on business, consists in deferring advance payments for income tax on remunerations paid out under employment relationship, contracts of mandate and royalties due for October, November and December. Just as in the case of ZUS exemptions, the deferment covers a well-specified group of businesses. The deadlines for making the payments were extended to May, June and July 2021 respectively. Although this measure does not directly reduce the public-law burdens, it significantly improves the financial liquidity of businesses, shifting expenses that would be incurred in the period of the greatest crisis, to the period in which, hopefully, the economic situation will slowly get back to normal.
Author: Piotr Hanuszewski, Assistant Manager, Tax, Global Mobility Services, KPMG in Poland