How much will IT professionals lose from the Polish Deal?

published: 14.01.2022

Up to one salary per year will be lost by the highest paid professionals, because of the Polish Deal. Many have already announced that they will negotiate new terms of employment with their employers. Awareson and ITA Doradztwo Podatkowe are able to explain how the IT industry can limit losses.

First of all, the increase in  the tax-free amount to PLN 30, 000 of annual income and the increase of the second tax threshold to PLN 120, 000 (above which, the 32% PIT rate applies) should be evaluated positively. Added to this are new tax reliefs, such as the middleclass relief or the innovation relief – Ewa Szkolnicka-Górecka, tax adviser  at ITA, enumerates:

It would seem that these solutions, whilst  keeping PIT rates at their current levels, should rather result in a reduction of the fiscal burden. Why, then, does this not happen?  The most painful change, which the Polish Deal funds for us, does not concern the increase of taxes, or at least, not directly. It concerns revision of the current rules for calculating health contributions for persons conducting economic activity, i.e. replacement of a lump-sum contribution with a contribution calculated on the basis of income. For entrepreneurs settling accounts on general principles (according to the tax scale), the health contribution will amount to 9% of income. In the case of persons taxed on a flat rate, it will be 4.9% of income. At the same time, the amount of the health contribution for these persons cannot be lower than 9% of the minimum remuneration for work in a given year. On the other hand, so-called lump-sum taxpayers will pay a health contribution, amounting to 9% of the basis for its assessment, the amount of which will depend on the average monthly remuneration for work in the enterprise sector, as well as the amount of income achieved.

– However, this is not the end of the revolution related to the settlement of health care contributions – the Polish Deal not only changes its amount for entrepreneurs, but also completely removes the previous possibility to deduct a major part of this contribution from tax. Taking into account, that in 2021, the amount of monthly health contributions for entrepreneurs is PLN 381.81, of which PLN 328.78 can be deducted from tax, the solutions introduced by the Polish Deal, may turn out to be very severe – explains Ewa Szkolnicka-Górecka.

The unfavourable changes will also be felt by people employed on an employment contract, who will also lose the previous possibility of deducting a significant part of the health contribution from tax. Thus, in practice, although the PIT rates will not change, the income tax payable will ultimately be higher.

– The Polish Deal was supposed to encourage people to work on an employment contract, but in fact, it is the other way round. This is a growing problem for employers – there has recently been enormous volatility in the IT industry. The dynamic growth of salaries makes IT specialists change their jobs frequently, and it is increasingly difficult to keep them. Polish technology companies are in the worst situation, as they are unable to compete, in terms of rates with foreign competition. This indeed,  is a blow to the economy’s innovativeness. New tax burdens will exacerbate this problem – employees’ financial expectations will grow, as will their aversion to full-time jobs,  Dorota Andrzejewska, head of recruiters at Awareson, claims.

The increase in fiscal burdens, associated with the new rules for accounting for health contributions, was supposed to be compensated by the so-called relief for the middleclass. However, this solution will be used, only by persons employed on the basis of an employment contract, and entrepreneurs who will be  taxed on general principles. However, the right to take advantage of the relief will be denied to those, whose annual income exceeds the amount of PLN 133, 692 (PLN 11, 141 per month). In practice, therefore, the new relief will have a limited application.

Also, not everyone will benefit from the increase of the tax-free amount – it will not apply to persons subject to flat-rate taxation, or those who settle in a lump sum. On the other hand, the new obligation of monthly indication of the basis for health insurance premiums, will undoubtedly further complicate book-keeping services for businesses.

To the list of changes that may hit entrepreneurs in the pocket, including IT specialists, let us also add new, unfavourable rules of purchasing a leased car for private assets, or changes regarding depreciation of used fixed assets. However, despite  the above-mentioned difficulties, the Polish Order may also have some advantages for IT specialists.

Raising the second threshold of the tax scale, and the resulting increase in the limit of the so-called author’s costs, the possibility of simultaneous application of an allowance for research and development activity, and preferential taxation of the IP Box, with reduction of the flat rate on registered income for IT companies falling from 15% to 12% – these solutions may undoubtedly contribute towards  mitigating the new fiscal burdens. Ewa Szkolnicka-Górecka asserts that  all these preferences cannot be used at the same time, as  the possibility of application of specific solutions is determined by the selected form of employment and taxation.

Finding the most optimal form of settlement may, therefore, prove crucial in minimising losses caused by the Polish Deal.

In recent months, the IT industry has been operating in an atmosphere   of great uncertainty. We learned the final shape of the new regulations, two months before they came into force. This is very little time to make financial decisions that will determine  next year’s fortunes. A lot of IT professionals have been coming to us, asking for help in explaining the changes and, more recently, even negotiating with companies. They expect  employers to take on the cost of the Polish Deal,  Dorota Andrzejewska adds.