Taxation in Agriculture

Chapter 31. Poland

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

31.1. Overview

The agriculture sector in Poland is characterised by a large number of small farm holdings which employ a significant share of the labour force. Farm productivity is low and rural poverty rates are relatively high. Forty per cent of the population lives in rural areas and 93% of the total land is considered rural. In 2016 there were 1.4 million farms, 97% of which were owner operated.

Poland has a preferential tax system for agriculture aimed at reducing the tax burden on the sector. Farm income is not taxable under the general income taxation system with 95% of farmers exempt from paying income tax. A small number of farmers producing specific products pay income tax either calculated on the basis of average production norms or on actual cost accounts. Agricultural property taxes are calculated on a set unit price for rye multiplied by the area of the farm holding. These taxes are lower than regular property tax and by expanding the size of the farm holdings farmers can be exempted. Most farmers use the flat rate scheme rather than the regular VAT regime.

Taxes on inherited or gifted transfers of agricultural land and buildings are not taxable nor are taxes applied when agricultural land is being transferred between generations as part of a farmer’s retirement. Excise tax fuel rebates for fuel used in agriculture are significant and in 2018 these rebates were worth EUR 216 million. Farmers and their families contribute less to their special social insurance scheme than they would under the normal social security system and are entitled to receive similar levels of, mostly state funded, pay-outs.

31.2. Income taxation

Farm incomes are taxed differently from regular non-agricultural activities. Income tax is not charged on the revenue for most farms, instead an agricultural property tax is levied (see the section below).

Revenue from farms producing the following agricultural products is liable for income tax: greenhouse production, poultry, mushrooms, bee keeping, silkworm production and animal production carried out outside the holding. These farms represent only 2% to 5% of total farms in Poland. Income taxes levied on agricultural production from these farms may be assessed in two ways either based on average production norms or based on cost accounts. If tax payments are based on average production norms, the calculation is an average unit charge multiplied by the area or numbers of units of production. In this case, the farmer is not obliged to keep financial records. If the farmer keeps accounts, then the calculation of taxable income is based on normal cost accountancy, profit and loss calculations.

Individual farmers operating non-agricultural businesses as natural persons or in partnership or as a partner companies are obliged to keep accounting records for fiscal purposes. In addition, agricultural entities must keep accounts if their profits from the previous financial year exceed EUR 2 million. Tax accounts are prepared on a monthly basis according to farm accounts and payments are also submitted monthly to the tax office with a reconciliation completed at the end of the tax year in April.

Individual farmers who run non-agricultural business activities are subject to the same obligations as any other entity and are subject to income tax. Nevertheless, they have certain privileges related to the social insurance system for farmers (KRUS). One of the conditions for being insured by the scheme is that income tax paid on non-agricultural activities does not exceed the annual limit set at PLN 3 376 (in 2018).

On 1 January 2017, the amended provisions of the Corporate Income Tax (CIT) Act came into force, reducing the standard corporate tax rates applied to small taxpaying companies from 19% to 15%. The status of a "small taxpayer" (mały podatnik) is granted to companies whose annual turnover in the previous financial year was less than EUR 2 million (including VAT) in 2019 (an increase on the previous threshold of EUR 1.2 million meaning a larger number of small taxpayer companies benefit from the lower CIT rate). The government intends to continue to reduce CIT rates for small taxpayer companies to 9% making it one of the lowest CIT rates in Europe.

Individual farmers who operate through a limited liability company are subject to different tax regulations, in particular, they have certain advantages in the recovery of value added taxes.

31.3. Property taxation

Instead of paying income tax farmers and foresters pay agricultural property tax (podatek rolny) to their local authority. This is different from regular property tax and is calculated on unit area multiplied by the value of a set number of hundred weights of rye per hectare. The value of this rye is announced for the next tax year by the National Statistics Office.

There are certain exemptions to having to pay the agricultural property tax. For instance if a farmer increases the size of their agricultural holding to a maximum of 100 hectares or creates a new holding or buys or leases land from the Agricultural Land Agency they are exempt from the tax. Certain classes of agricultural land are exempted (i.e. classes V, VI and Viz all categories of agricultural land with low soil quality) as well as wooded lands and organic farms.

Farm buildings used exclusively in agricultural activities are exempt from real estate tax.

Inheritance or gift taxes do not apply in the case of agricultural property (land and buildings). Buildings, which are used for agricultural production and are located on holdings less than one hectare are also exempted in the case of inheritance by a close family member. The transfer of the farm dwelling is however liable to normal property inheritance taxation unless the person who inherits does not own another residential property and declares they intend to live in the dwelling for a minimum period of five years.

Transfers of an agricultural holding (including land, buildings and dwelling) within the provisions of the social insurance programme for farmers, are exempt from property transfer taxes. This procedure is common when the farmer retires and hands control of the agricultural holding to a child or a close relative.

31.4. Tax on goods and services

The standard VAT rate is 23% while a lower VAT of 5% applies to basic food products, such as bread, cereal products, dairy products, meat preparations and juices. On the construction of buildings the VAT rate is 8%.

In 2017 only 38.7% of farms are VAT registered, although every resident in Poland is issued with a personal VAT identification number. Farms registered for VAT are able to account in full, as any other business, their VAT and recover or offset payments on a yearly, biannual or monthly basis.

Farmers who are not VAT registered are not required to account for VAT, submit VAT returns or make claims for VAT paid. However they can charge a flat rate of 7% on their sales of goods and services to VAT registered customers. Most farms use the flat rate VAT scheme although in some cases it may be disadvantageous to smaller farmers who are unable to recover the full costs of VAT.

Since 2006, Poland provides excise tax fuel rebates for fuel used in agriculture (in 2018 these rebates were worth EUR 216 million). In 2019, the excise tax refund limit is PLN 100 multiplied by the number of hectares of agricultural land (increased from the 2018 refund limit of PLN 86) and PLN 30 multiplied by the average number of large bovine conversion units per annum. To claim the refund farmers must present their VAT invoices as proof of fuel purchases.

31.5. Environmental taxes

Agricultural enterprises (in the form of legal entities) are levied with various environmental taxes. Obligations of the Environmental Protection Law 2001 (Ustawa z 24 kwietnia 2001 r. – Prawo ochrony środowiska) relate to agricultural activities such as:

• Raising or breeding poultry or pigs in connection with the integrated permit.

• Using underground water from wells (within the framework of the water license) held for the purposes of farming, including fruit and vegetable growing

• Emissions of sewage directly into the environment with a water permit (‘pozwolenie wodne’).

31.6. Tax incentives for R&D and innovation

There are tax allowances in CIT and Personal Income Tax (PIT) related to the deduction of eligible costs (relief for research and development). From 1 January 2018, an R&D tax relief covers 100% of eligible costs, which can be deducted from the tax base. The types of eligible costs incurred for R&D has been expanded and include the following: salaries of researchers, purchases of scientific equipment and materials required for research, costs of registering patents, depreciation of fixed assets. The aim of increasing tax relief and expanding the expenses covered by the R&D tax incentives is to encourage the use of this mechanism which has been low, particularly in rural areas.

31.7. Other taxes

The Act of 20th December 1990 concerning social insurance payments for farmers (OJ. 1998, No.7 Item 25 with later amendments) created a social security fund for farmers (known as KRUS) which provides retirement payments. The contributions made by farmers are only a small proportion of the total payments they receive, the majority (more than 90%) of which comes directly from the state budget.

Eligibility for the KRUS is broad. All residents of Poland with land ownership of greater than 1 ha of agricultural or forestry land may register for KRUS rather than the normal Social Security System (ZUS), provided they perform farming activities themselves. Family members including spouses and children of more than 16 years old, but also relatives benefit from KRUS provided they live on the farm. Contributions into the KRUS are lower than under the ZUS scheme, although farmers receive similar benefits with regards to health care, education, and social welfare. Some benefits are, however, lower in the KRUS Scheme (pensions).

In 2017, according to the KRUS data more than 1.2 million people were insured under KRUS, while more than 1.1 million were receiving benefits (pension and disability allowance combined). Moreover, 987 007 pay premiums to KRUS. The total expenditure for all benefits combined amounted to PLN 20 394 million (including pensions and disability allowances as well as benefits paid from maternity, illness and accident funds).

Health insurance covers farmers (spouses), household members, retirees and pensioners. In 2017, the total number of people covered by health insurance was just over 2.4 million. In 2018, the premium for health insurance paid by each person insured on the farm amounts to PLN 1 per month for each conversion hectare (hektar przeliczeniowy) exceeding 6 hectares of utilised arable areas. Farmers with farms smaller than 6 hectares do not pay health insurance contributions. It should be noted that the average size of an agricultural holding is 18 hectares. This health insurance premium is a very low charge in comparison to the premiums for health insurance paid by self-employed in non-agricultural business activities covered under the ZUS.