From 1 January 2025 cash PIT
On 23 April 2024, a draft amendment to the PIT Act and the Lump Sum Act (hereinafter: the ‘Draft’) was published, which envisages the introduction for PIT taxpayers of the possibility of settling on a cash basis, i.e. deferring the moment when taxable income arises until the counterparty settles the payment. According to the government’s announcement, the proposed changes are to come into effect from 1 January 2025.
Who will be able to use the cash method?
This form of taxation will be available to entrepreneurs who settle personal income tax:
-According to the general rules (tax scale);
-According to the flat tax;
-According to the lump-sum tax on registered income;
-Beneficiaries of the IP-BOX relief.
The draft assumes that a taxpayer will be entitled to settle PIT using the cash method, provided that the following conditions are jointly met:
-Revenues from self-employment in the year preceding the tax year in which the taxpayer opted for cash accounting did not exceed the equivalent of EUR 250,000;
-The taxpayer does not keep books of account in connection with his business activity (he keeps only simplified accounting);
-Submits to the head of the tax office a written statement on the choice of the cash accounting method as of 20 February of the tax year, and in the case of a taxpayer starting his business activity during the tax year, by the 20th day of the month following the month of the start of his activity;
-The taxpayer conducts his business independently, he does not conduct it, for example, in the form of a civil partnership or general partnership.
Basic assumptions:
-In accordance with the legislator’s announcement, a taxpayer deciding to apply the cash method will be entitled to recognise revenue on the date of payment of receivables, which is to be understood as partial payment of receivables, including on account of supplies of goods and services to be performed in subsequent reporting periods. The taxpayer will also be obliged to recognise as revenue the advance payment, prepayment and instalment paid.
-At the same time, the draft assumes that in the event of failure to obtain payment for the receivable, the taxpayer will be obliged to recognise revenue no later than two years from the date of issuance of the invoice or liquidation of business activity.
-This method of accounting will only be applicable to transactions that are properly documented by invoices that were issued on time.
-The cash accounting method will only apply to transactions between businesses (B2B) – taxpayers will not be able to apply this method of tax settlements to transactions with consumers.
The cash accounting method will not be able to be applied in the following cases:
-Transactions carried out with related parties, where significant influence is understood as the possession, directly or indirectly, of at least 5% of shares in the capital or voting rights in the controlling, managing or constituting bodies. The assessment of relationships will be carried out in accordance with the criteria set out in the PIT Act.
-Transactions with entities having their domicile, seat or management in a country or territory which applies harmful tax competition, or where the transaction involves a foreign permanent establishment located in such a country or territory.
-Transactions on the disposal for consideration of tangible and intangible assets
of tangible and intangible assets that are recorded in a register of tangible and intangible assets. The date on which revenue from the disposal of these assets arises, determined on a general basis (accrual method)
The planned effective date of the so-called cash-based PIT is 1 January 2025, but it should be borne in mind that the changes presented are currently under review by the Ministry of Finance and the final regulations may differ from the announcements.