Is it possible to escape the Polish Order?

Everyone is talking about the New Deal, which came into force at the start of this year. For some, it may bring potential benefits, but in the vast majority of cases it threatens additional burdens. In addition, taxpayers have not been given adequate time to familiarise themselves with the changes and implement them in an appropriate manner. In the following article you will find some of the changes I have selected that I consider to be the most important in the eyes of entrepreneurs. I will discuss them and allow me to share with you a short analysis on the basis of which I will respond, whether there is any way to escape the Polish Order. 

If you are curious as to my position on this issue, I cordially invite you to read on.

What significant changes does the New Deal introduce?

• Increase of the second tax threshold from PLN 85 528 to PLN 120 000:
  • When a taxpayer's annual income in a given tax year is below PLN 120,000, he or she will be subject to income tax of 17% on the tax base. Once this amount is exceeded on an annual basis, the taxpayer is subject to the second tax threshold, which is already 32% on the tax base.
• Increase in the tax-free amount from PLN 8,000 to PLN 30,000:
  • Explaining kThe tax-free amount is the sum of annual income that is not subject to tax. The threshold for the tax-free amount will be PLN 30,000 for each taxpayer. Consequently, taxpayers with lower incomes will pay no tax at all and those with higher incomes will pay tax on the excess.
• Changes to the accounting of the health contribution:
  • Previously, the health insurance contribution was 9% of the assessment base for all entrepreneurs. In addition, a significant part of it (7.75%) was deductible from income tax. Thus, this solution, which was used by a very large number of taxpayers, had the effect of actually reducing tax costs. The New Polish Deal significantly modified the principles of accounting for the health contribution by:
    • the absolute impossibility of deducting part of the health contribution from tax;
    • No option to pay a flat rate health contribution - in principle, for each taxpayer it will be 9% on the amount of the entrepreneur's income.

The increase of the second tax threshold and the tax-free amount are changes that have been expected from the Polish legislator for a long time and should be assessed positively. However, it should be noted that In the end, these changes will result in a reduced tax burden for only some taxpayers. Many will, nevertheless, pay higher taxes. The change in the rules for determining the amount and the abolition of the tax deduction for health contributions will contribute to this.

Is it possible to escape the Polish Order? Conversion of a sole proprietorship into a limited liability company.

The New Deal significantly hits entrepreneurs running one-person businesses registered with CEIDG. One of the solutions in their case turns out to be the transformation of the business into a limited liability company. This is possible, inter alia, under the provisions of the Commercial Companies Code, through the so-called succession of rights and obligations. In practice, this means that the newly established company will take over the existing rights and obligations of a sole trader. In this regard, tThis fish should be considered one of the simplest and least interfering with the existing business. By transforming a JDG into a company under these rules, nhe company will become the employer if we have hired employees within the JDG. The company will become the employer if we have employed employees within the JDG.

What can we gain by converting a JDG into a limited liability company?

Partners in limited liability companies (in an arrangement where there are at least two of them and the other partner has no less than 10% shares) are not subject to compulsory social insurance. Thus, they do not have to bear the costs associated with Social Security, which include the health contribution, which is proving to be a major concern for entrepreneurs in 2022. 

Attention!

A single person is sufficient to transform a sole proprietorship into a limited liability company. However, it should be remembered that a partner in a one-person company is treated in the same way as a person running a sole proprietorship in terms of ZUS. In practice and in the context of the New Deal, this means that not much will change with such a solution - it will still be necessary to pay higher contributions.

Whether converting the JDG into a company will be a way for us to really "escape" from the Polish Order will depend primarily on the the actual income of our company and the form of accounting used. This option may prove particularly interesting for entrepreneurs with revenues below the equivalent of EUR 2 000 000. This is because companies with such revenues may benefit from a reduced CIT rate of 9 per cent. 

Is it possible to escape the Polish Order? Summary

The beginning of 2022 is certainly a difficult time for many business owners, associated with analysing tax legislation and trying to adapt to new regulations. This is because they are faced with the challenge of facing with changes which, let us not conceal, are very wide in scope. The New Deal modifies not only the principles of taxation, but also many other issues that I have not taken the liberty of discussing in today's article. 

The revolutionary changes resulting from the Polish Order have a huge impact on taxpayers. Consequently, the vast majority of entrepreneurs will face new challenges and negative consequences. These include the need to pay higher tax dues. I hope that reading this post will increase your awareness of the implications of the Polish Deal and allow you to make an informed decision as to whether it is worth taking any legal action in your case. Nevertheless, the aim of the article was to show that, despite everything, there are solutions through which you can "escape" from the Polish Order.