New rules for settlement of tax losses introduced from 2019 in Poland

From the beginning of 2019 another significant change relating to the settlement of losses was introduced, this time in favor of the taxpayer. The new regulation introduced the possibility of a one-off settlement of a tax loss up to PLN 5 million. 

What changes have been made in the tax law?

The Act on Amending Certain Acts for the Purpose of Facilitation of the Tax and Economic Laws for Enterpreneurs introduces almost 50 simplifications. The main beneficiaries will be mainly small and medium sized enterprises.

One of the most significant changes is the introduction of the possibility of a one-off settlement of tax losses. In the case of entrepreneurs who are natural persons, the issues related to the taxpayer's settlement of losses from his/her source of income are regulated in the PIT Act (the same solution is also provided for in the CIT Act). Article 9.3 of the PIT Act clearly states that:

The amount of loss from the source of income incurred in the tax year can be reduced by the income obtained from this source in the next five consecutive tax years, however, the amount of reduction in any of these years can not exceed 50% of the loss.

Until now, taxpayers could reduce their income from the source of income from which they incurred a loss in the next 5 tax years by the amount of this loss. However, they had to make sure that the reduction in any one year would not be more than 50 percent of the loss. As a result, the loss could be settled, regardless of its amount, but only after a minumum of two years (if income is reduced in the first and second years by half the loss in each respective year).

The amendment adopted by the Polish Parliament introduces an additional possibility, namely a one-off settlement of tax losses. This introduces the possibility of settling the whole value of the tax loss in any one of the next 5 consecutive tax years. However, a one-off settlement will only be possible for a loss of up to PLN 5 million. In the situation when this limit is exceeded, entrepreneurs will be able to deduct the excess amount of the loss in one of the next 5 consecutive tax years, but only up to a maximum of 5 million PLN and by no more than 50% of the loss in any single year.

It is worth adding that whether the new form of settlement will be used will depend only on the entrepreneur's decision. The amendment does not eliminate the possibility of settling on the current terms, i.e. over five consecutive tax years.

New rules for settlement of losses - what are the benefits for entrepreneurs?

The changes to the tax law in Poland, which were adopted on 9 November 2018, concern in particular small and medium-sized enterprises, which is why the amendment is referred to as the SME package. The new loss settlement rules, in force since January 2019, aim to improve the financial situation of entrepreneurs, who for various reasons, have suffered a loss, as well as to increase certainty about the "recovery" of previously deposited funds. They will certainly prove beneficial to enterprises that initially have to invest significant funds into their operations, as well as to those enterprises whose income increases slower after a loss is incurred.