Polish Deal and its impact on business activity

The Polish Deal is probably the largest change of tax law in Poland since 1990. All companies with operations in Poland will be affected. The changes significantly affect several areas of taxation including Corporate Income Tax (CIT), Personal Income Tax (PIT), and Value Added Tax (VAT).

Despite the government’s official narrative that the Polish New Deal is a “historic decrease in taxes,” many of the tax changes may result in increases in the effective tax rate and tax change management will likely be a challenge for Polish companies’ tax departments.

The first days of the application of the tax regulations of the Polish Deal revealed a number of serious problems related to their application in practice. It turned out that even taxpayers included among the beneficiaries of new tax solutions – until annual settlements in 2023 –  must count on increased fiscal burdens and entrepreneurs – also income tax payers – were unexpectedly burdened with a double obligation overnight, making it necessary to recalculate advances and reconstruct newly changed accounting and payroll systems.

The Entrepreneurship Council (Rada Przedsiębiorczości), which brings together the largest employers organizations in Poland, has appealed to the government to urgently prepare and submit to the Sejm draft legislative changes that will suspend the application of the tax provisions of the Polish Order until January 1, 2023 and restore the application of existing legal regulations.

The American Chamber of Commerce in Poland conducted a survey among its member companies to learn how they plan to mitigate possible wage declines resulting from “the Polish Deal”?

U.S. firms in Poland need increasing numbers of workers and most of those surveyed predict an increase in hiring in 2022. One-third of the companies have announced actions to mitigate tax changes and rising inflation, while the remaining respondents are waiting for the situation to clarify. Most companies asked said there would be wage raises (on average of about 10%). At the same time, salary changes will depend on type of position and value of original salaries.

Comments from the survey respondents indicate that it is too early to make decisions in this regard. Respondents said that they are currently gathering facts and observing the market or that discussions are still in progress, but increased taxes would impact their teams.

Most companies who want to mitigate wage declines have reported possible raises in salaries (52%). However, according to some comments, the remuneration policy depends on specific positions and original salaries. Respondents claim that increases due to “the Polish Deal” will cover only a small group of employees. They stress that there is enormous pressure from employees to compensate for inflation as well as losses due to “the Polish Deal” for employees with higher salaries. Some employers said they will not have 1-1 compensation for the tax changes and that they aim to have a salary review budget.

The survey brough additional comments from employers:

–           “Polish demography means a fast-aging workforce. (…) There needs to be more pro-children/family legislation, less agism (which is a big issue here), more focus on older worker wellbeing and engagement and additional skilled immigration needed beyond only Ukrainians.”

–           “The war on talent is fierce and we want to continue attracting and retaining the best in the market. Salaries will continue to increase as Poland matures.”

–          “My company employs highly skilled IT and business consultants and is nearly entirely based on regular employee contracts. I am very afraid of employees’ personal tax increase and the threat to our employment structure. (…) Such reform should have been announced and discussed publicly earlier and in detail.”

–          “The Polish Deal should be declared invalid and closed down.”

Survey “The Polish Deal and inflation wage effects” was conducted on January 14-19, 2022 among AmCham Corporate Members and C-Level Executives and HR Managers (69 respondents).