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New rules for taxation of incentive schemes | SSW Tax Alert

According to the Act of 27 October 2017 amending the PIT Act contains significant modifications with regard to the taxation of income from incentive schemes based, among other things, on derivative financial instruments and shares.

1.    Incentive schemes based on derivative financial instruments

The new regulations introduce significant modifications as regards tax implications of popular incentive schemes based on financial instruments awarded gratuitously or for symbolic remuneration. As of 1 January 2018, income from redemption of securities other than shares, or from derivative financial instruments acquired as a benefit in kind or gratuitous benefit, will be included in the relevant source of income, i.e. the one in respect of which such benefit in kind or gratuitous benefit was obtained. In practice, this will mean that the 29% flat tax rate for income from capital gains will not be applicable to income generated from the redemption of such instruments.

2.    Incentive schemes based on shares

The Act also defines more specifically the scope of preferential taxation of income from the participation in conventional incentive schemes.

The definition of an incentive scheme its introduced, which covers exclusively schemes organised directly by a public limited company (spółka akcyjna). Thus, the preferential taxation will not cover persons employed in companies with a different legal status than public limited company (e.g. limited liability company – spółka z ograniczoną odpowiedzialnością).

The preference will only be available to persons engaged under an employment contract or a civil-law agreement, provided that the income from the latter is recognised as income from activities performed in person.

On the other hand, the upcoming arrangements provide explicitly for a deferred taxation option available not only to persons who are directly entitled to acquire or subscribe shares, but also to those who acquired or subscribed the shares a result of the exercise of their rights under derivative financial instruments, or exercise of other property rights.

3.    What are the implications of the changes introduced in this form?

The introduction of the above changes to the PIT Act will result in the change of the tax qualification of income generated under incentive schemes as it will be subject to the regular tax scales (18 and 32%), instead of 19% flat income tax. Such qualification of the income could also imply that social insurance premiums will be payable thereon. In some cases, companies which pay benefits under incentive schemes may be burdened with taxpayer’s obligations.

In the absence of any transitory provisions, the above-described taxation approach will be applicable already to income generated in 2018.

In order to get properly prepared for the entry of the upcoming changes into force, it is worthwhile to review the provisions of incentive schemes implemented by your company already now, and to consider potential modifications, or the implementation of an entirely new programme.

In this context, we also wish to draw your attention to the fact that, as a result of the amendment of the PIT Act with regard to incentive schemes, previously obtained tax interpretations may lose their protective value.

Should you be interested in discussing the implications of the new arrangements in your situation, please do not hesitate to contact us.

Patrycja Goździowska - Partner, Tax Advisor

Tomasz Wickel - Partner, Attorney at Law