Taxpayers affected by recent unfavorable changes introduced under the Polish Deal (1.0 and 2.0) have been increasingly turning to proven solutions regarding personal income tax (PIT). In this context, the 50% tax deductible costs (TDC) have are becae more and more popular. Can everyone apply them? What conditions must be met to benefit from this tax preference?
WHAT ARE 50% TAX DEDUCTIBLE COSTS (TDC)?
- This solution fundamentally increases tax-deductible expenses related to specific income derived from copyrights.
- Applying this solution reduces PIT and increases the net amount received as salary.
- Its essence lies in the ability to reduce income tax for employees/self-employed individuals under civil law contracts performing specific creative work.
50% Tax deductible costs and PIT Regulations
According to Article 22(9)(3) of the PIT Act, tax deductible costs from using copyrights by creators and related rights of performing artists, as defined in separate regulations, are set at 50% of the revenue earned, subject to Article 9a and 9b.
These costs are calculated from revenue reduced by the social security contributions withheld by the payer in the respective month, as per Article 26(1)(2)(b), based on this revenue’s assessment base.
In other words, employees who are creators or artists have the option to increase the amount of tax-deductible expenses (from the standard monthly 250/300 PLN) up to 120,000 PLN annually – concerning selected income categories. Instead of deducting 250 PLN monthly (or 20% in the case of civil law contracts), there’s the possibility to raise the expense amount up to 50% of monthly revenue.
50% Tax deductible costs – examples
Below is a comparison of potential benefits from applying 50% tax deductible costs in PIT to the incomes of employees under employment contracts.
| – | 50% TDC | 50% TDC | |
| Gross (PLN) | Net (PLN) | Creative work covering 1/2 of earnings | Creative work covering 3/4 of earnings |
| 8 000 | 5 784 | 6 234 PLN | 6 282 PLN |
| 12 000 | 8 489 | 9 200 PLN | 9 423 PLN |
| 15 000 | 10 030 | 11 443 PLN | 11 799 PLN |
*Above calculations are solely illustrative. Final results depend on many individual factors (such as PIT reliefs, PPK contributions, joint tax settlement with a spouse etc.)
Legal Requirements
Legal changes effective from 2018 significantly restricted the group of individuals entitled to apply 50% TDC. This issue is regulated in Articles 22(9) to (9b) of the PIT Act.
According to Article 22(9) of the PIT Act, the 50% TDC apply to, among others:
- Payment to a creator for transfer of the ownership rights of inventions, integrated circuit topographies, utility models, industrial designs, trademarks, or ornamental designs;
- Licensing fees for the transfer of rights to use inventions, integrated circuit topographies, utility models, industrial designs, trademarks, or ornamental designs in the first year of the license’s duration from the first entity with which the license agreement was concluded; and
- Use of copyright by creators and related rights of performing artists or disposal of these rights.
According to these provisions the possibility of applying the 50% TDC is limited:
- (1) subjectively – to a specific group of taxpayers and
- (2) objectively, because they apply to:
(2a) the use of copyright by them or
(2b) the disposal of these rights.
Types of Activities
Additionally, according to Article 22(9b) of the PIT Act, the above costs are only applicable to revenue obtained from:
- Creative activities in architecture, interior design, landscape architecture, civil engineering, urban planning, literature, fine arts, industrial design, music, photography, audiovisual and auditory creativity, computer programs, computer games, theater, costume design, scenography, directing, choreography, artistic luthiery, folk art, and journalism;
- Artistic activities in acting, entertainment, dance and circus arts, conducting, vocal and instrumental performance;
- Audiovisual and auditory production;
- Journalistic activities;
- Museum activities in exhibitions, scientific, popularization, educational, and publishing fields;
- Conservation activities;
- Dependent rights, as referred to in Article 2(2) of the Act of 4 February 1994 on copyright and related rights (Journal of Laws of 2019, item 1231 and 2020, item 288), to develop another’s work in the form of translation;
- Research and development, scientific, scientific-teaching, research, research-teaching, and educational activities conducted at universities.
In summary, to benefit from this solution, one must (1) be a creator/artist working in one of the aforementioned fields and (2) have income derived from copyright profits.
Upper Limit – the 50% Tax deductible costs
The 50% TDC are limited by a cap (quota) regulated in Articles 22(9a) and 22(9aa) of the PIT Act.
Primarily, the crucial limit stipulates that in a given tax year, the 50% tax deductible costs cannot exceed the amount constituting the upper limit of the first tax bracket scale (from Article 27(1) of the PIT Act), i.e., 120,000 PLN.
If the tax deductible costs were to exceed those resulting from applying the aboved mentioned rule, the TDC are accepted in the amount of costs actually incurred (Article 22(10) and 22(10a) of the PIT Act). Nonetheless, in such cases, there is risk that costs will not be awarded after exceeding this “limit.”
Ministry of Finance Clarifications
As these regulations are not entirely clear, the Ministry of Finance issued a general interpretation No. DD3.8201.1.2018 regarding the application of the 50% tax deductible costs to author’s fees (direct link).
This interpretation is quite comprehensive, providing answers to many questions. Therefore, it is recommended to familiarize oneself with its contents.
50% TDC – Why Consult a Tax Advisor?
Despite the general interpretation that have been issued in this topic and the fact, that this solution has been functioning for some time already, there are still cases where the tax authorities try to interpret unclear provisions unfavorably for the taxpayer. Therefore, proper preparation is necessary to implement 50% TDC.
We support our clients (individuals) by verifying the possibility of applying the 50% TDC (analysis of contracts and actual activities, consultations), and ensure the maximum level of protection for such taxpayers.
As for clients who would like to implement 50% TDC in their companies (i.e., employers/contractors), typically an analysis of contracts and actual activities, preparation of relevant calculations, implementation of valuation and transfer procedures for copyrights are necessary. In more complex cases, we assist in amending contractual terms, preparing appropriate evidentiary procedures, coordinate accounting work, and assist in preparing applications for interpretation to the National Revenue Administration Information Center.
This is the first of explanatory posts explaining the essence of 50% tax deductible costs. Further publications will follow shortly.
If you have any questions regarding the application of 50% TDC, please visit www.outsourced.pl .
