POLISH ORDER – OPERATING PRINCIPLES

The Polish Deal – pros and cons

The Polish Deal is a plan announced by the Law and Justice government, which was intended to revive the Polish economy. One of its aims was to introduce the necessary tax changes in the wake of the COVID-19 pandemic. The global spread of the coronavirus caused problems not only in the health service, but also in the economy

and the country’s finances. This was due to lockdowns, fluctuating consumer sentiment, wage freezes or cuts, job losses, etc. Our reality changed significantly during the pandemic. To help business owners, the middle class, pensioners, the lowest earners and those particularly affected by the crisis, the government drew up recovery plans. These included furlough payments, the anti-crisis shield and, indeed, the ‘Polish Deal’ Act, which has sparked much controversy. So what does it involve, and what are its pros and cons for business owners?

What is the ‘Polish Deal’?

The Polish Deal is, in essence, intended to reduce social inequalities and cover around 18 million Poles. The Act came into force on 1 January 2022 and immediately sparked a great deal of controversy. Unfortunately, the programme as a whole has generally been met with negative assessments from experts. It has been criticised that the provisions of the Act are not entirely clear, that they create chaos, and that, at times, rather than facilitating certain tried-and-tested solutions, they actually hinder them. The main criticism, however, was the haste with which it was introduced and the very low level of awareness regarding its application, for example amongst accountants. The Act is currently in force with numerous amendments, so the government has announced a further reform to take effect from 1 July.

The provisions of the Polish Deal included, amongst other things, the following changes:

• an increase in the tax-free allowance,
             
• a tax exemption on pensions up to 2,500 zł,
             
• more funding allocated to the health service,          
             
• the possibility of building houses of no more than 70 m² without a planning permission,
             
• the extension of tax relief for the middle class to include entrepreneurs who file their tax returns using the PIT tax scale.

The Polish Deal therefore covered many sectors, including: taxation, health, investment, family and home, education, the environment, agriculture and business.

Disadvantages of the Polish Deal for entrepreneurs

A significant drawback of the Polish Deal for entrepreneurs was the need to introduce numerous changes to accounting procedures. Many specialists responsible for company accounts were unsure for a long time how to calculate the tax due or the amount of the health insurance contribution. The regulations were highly complex, and the short lead time to prepare for their implementation led to confusion in many companies regarding accounts and the calculation of staff salaries. Even small businesses had to grapple anew with financial complexities.

Entrepreneurs, particularly those running sole traders, often had to consult accountants and work with them in order to comply with the new regulations. The biggest drawback of the Act was the changes relating to the calculation of the health insurance contribution, which, instead of being a flat-rate sum, was to be based on the entrepreneur’s taxable income. This effectively meant a tax increase; for example, in the case of the 19 per cent flat-rate tax, an additional 4.9 per cent was added as a compulsory health insurance contribution. Unfortunately, tax increases generally do little to encourage the growth of existing businesses or the establishment of new ones by budding entrepreneurs.

Benefits for business owners

According to experts, the most beneficial measure for entrepreneurs introduced as part of the Polish Deal is the significant liberalisation of the Estonian-style corporation tax. These taxation rules were introduced into our system as early as 2021. Despite the numerous advantages of this solution, including a significant simplification of tax returns (e.g. to the Tax Office), few firms have taken advantage of it. The changes associated with the Polish Deal have made this solution considerably more attractive.

However, there are still more questions than answers regarding the Polish Deal. The current global economic and political situation, triggered by the war in Ukraine, is not conducive to investment, and many sectors will feel its effects. An amendment to the Polish Deal Act is due to be introduced in July this year. An alternative for entrepreneurs starting up their businesses could be support from a business incubator, which takes newly established firms under its wing, thereby significantly simplifying tax matters. The ‘Firma dla Każdego’ Foundation enables a significant reduction in costs when setting up and running a new business on the market. It is worth taking advantage of this solution so that you can allocate your funds to your own development – including training and investments – whilst significantly reducing the amount of tax paid to the state.

See also: How can a business incubator help you?