One of the most significant changes envisaged in the Draft is the reduction of the tax rate in the so-called first tax bracket. It currently stands at 17%, and from 1 July this year it is set to be 12%. As a result of this change, many taxpayers may need to reassess their previous assumptions regarding the most advantageous form of taxation for them. The introduction of such a significant change during the tax year raises serious doubts regarding previously chosen tax arrangements implemented in the course of business operations. To address these concerns, the Draft (Articles 14–17) provides for an adjustment mechanism allowing for a change to the form of taxation previously applied.
This mechanism covers:
- entrepreneurs taxed in accordance with the provisions of Article 30c of the PIT Act, i.e. under the flat-rate tax,
- entrepreneurs taxed under the provisions of Article 6(1) of the Act on Flat-Rate Income Tax, i.e. the flat-rate tax on recorded income, and
- taxpayers subject to taxation under Article 6(1a) of the Flat-Rate Income Tax Act, i.e. the flat-rate tax on private lettings.
In Articles 14–16 of the Draft, the legislator, in order to enable the aforementioned taxpayers to take advantage of the option to change their form of taxation, introduces an obligation to notify the head of the competent tax office of this fact in the return referred to in Article 45(1) of the Act amended by Article 1, submitted within the time limit specified in that provision, i.e. in the annual tax return for 2022.
However, the option to change the form of taxation is limited in these provisions to the choice of tax scale. In such cases, care must be taken to select the appropriate tax return form, as, according to the position set out in the explanatory memorandum to the draft, this will determine the choice of taxation method, i.e. the tax scale (PIT-36), continuation of the flat-rate tax (PIT-36L) or continuation of the flat-rate tax on recorded income (PIT-28).
Importantly, the choice made in the return filed for 2022 will apply only to that year. Therefore, if a taxpayer has previously opted for the flat-rate tax or the flat-rate tax scheme, that choice will remain valid for 2023 and subsequent years. It should therefore be borne in mind that if we intend to change the form of taxation for subsequent years as well, we must notify the tax authorities of this intention in the manner and within the time limit provided for by the relevant regulations. It is worth noting here the specific provision contained in Article 17(1) and (2) of the Draft. According to this provision, a taxpayer subject to the flat-rate scheme who, within the time limit specified in Article 9(1) of the Flat-Rate Tax Act, has not submitted a written declaration of withdrawal from the flat-rate taxation of recorded income in 2022, may, by 22 August 2022, submit a written declaration to the competent head of the tax office opting out of the flat-rate tax on recorded income for income earned during the period from 1 July 2022 to 31 December 2022, whereby, in the case of conducting business in the form of a partnership referred to in Article 6(1) of the Lump-Sum Tax Act (a civil law partnership of natural persons, a civil law partnership of natural persons and inherited enterprises, or a general partnership of natural persons), such a declaration must be submitted by all partners and shall then also apply to subsequent years, unless the taxpayer opts for a different form of taxation.
In such a situation, the taxpayer will be required to submit two annual tax returns, namely PIT-28 (covering income earned from 1 January to 30 June 2022) and PIT-36 (covering income earned from 1 July to 30 December 2022).
However, in the case of taxpayers paying a flat-rate tax on private lettings, the legislator states that they will be able to benefit from the special rules set out in Article 71 of the Act of 29 October 2021 amending the Personal Income Tax Act, the Corporate Income Tax Act and certain other acts (Journal of Laws, item 2105, 2349, 2427 and 2469), i.e. ‘Polish Deal 1.0’. They will therefore be able to apply the rules for the taxation of such income in force as at 31 December 2021, subject to the proviso set out therein that, until 31 December 2022 at the latest, they may include in their tax-deductible costs depreciation write-offs on fixed assets and intangible assets constituting, respectively, residential buildings, residential premises constituting a separate property, co-operative ownership rights to a residential unit or rights to a single-family house within a housing co-operative, acquired or created before 1 January 2022. The taxpayer chooses the form of taxation in the form of a tax scale, as in the cases discussed above, i.e. by submitting a PIT-36 return.
As mentioned at the outset, these provisions are included in the draft bill referred to the Senate for further consideration. The draft, designated as Senate Document No. 714, is to be considered at a meeting of the Budget and Finance Committee on 1 June 2022. The provisions in question may therefore be subject to further amendments.
Frequently asked questions
Can I change my taxation form to the tax scale due to the tax rate reduction?
Yes, the draft provides for an adaptive mechanism allowing for a change from the current taxation form to the tax scale. To use this option, you must properly complete the annual tax return for 2022, selecting form PIT-36. This choice applies exclusively to 2022 and does not automatically bind you for future periods.
What are the consequences of filing a tax return for 2022 after changing the taxation form?
The change of taxation form made in the tax return for 2022 applies exclusively to that one year. If you plan to continue the new taxation form in subsequent years, you must declare such intention in the manner and within the deadline provided for current declarations. Your previous choice of taxation form remains valid for subsequent years, unless you make a new change.
What should I do if I am on the lump sum tax and want to change taxation from July 2022?
If you did not file a declaration of resignation from the lump sum tax within the deadline, you can file it by August 22, 2022, with effect from July 1, 2022. In such a situation, you will be required to file two annual tax returns, PIT-28 for the period from January to June and PIT-36 for the period from July to December. For civil partnerships and general partnerships, all partners must file the declaration.
How to tax income from private rental after changes in Polish Deal 2.0?
Taxpayers using the lump sum tax on private rental can benefit from special regulations, applying the rules in force on December 31, 2021. They may include in costs depreciation allowances on residential properties acquired before 2022, but no longer than until the end of 2022. The choice of tax scale is made by filing declaration PIT-36.
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The practice includes ongoing advice on administrative and tax law. He has extensive experience in handling judicial, administrative, tax and judicial-administrative proceedings concerning both individual clients and business entities, including that gained through many years of providing services to local government units and other units of the public finance sector.
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