Aid to persons affected by the conflict in Ukraine – selected tax issues
In recent days, the efforts of many of us have been focused on bringing support to those affected by the tragic events in Ukraine. Being aware that every form of support is now extremely important, we would like to share a short information about the possibilities of support that we have explored from our side.
1. The PIT Act lists in the catalogue of income tax-free income, among others, allowances received in the case of individual random events, natural disasters, long-term illness or death.
2. In our opinion, financial or material support provided to persons affected by the conflict in Ukraine (e.g. employees from Ukraine employed in Poland, Ukraine or other countries, as well as their Families) should be qualified as the above-mentioned allowances.
3. In the case of employees and other persons employed in Poland who are Polish tax residents, the above-mentioned benefits will be tax-free:
a) regardless of their amount – in the case of allowances financed from the social fund, company social benefits fund, trade union funds or in accordance with separate regulations;
b) up to the amount of PLN 10,000 (up to the end of the year in which the Covid-19 outbreak was terminated – the standard limit is PLN 6,000) – in the case of aid payments financed from other sources.
4. The transfer of funds to other persons should also be qualified as benefits (there are no provisions in the regulations exempting certain benefits from PIT which would limit their application to employees only). However, if the beneficiaries are not Polish tax residents, the allowances above the above-mentioned limits should not be subject to PIT in Poland. Tax consequences in the countries of tax residency of individual recipients should be confirmed from the perspective of local regulations.
5. In the case of aid recipients who are Polish tax residents, only the amount above the exemption limit should be taxed as income connected with the employment of the person concerned (in the case of employees/contractors) or possibly as income from other sources (in the case of other persons) and should be shown in PIT-11 to be transferred to these persons. On the other hand, the allowance (also above the limit) will be free of social security contributions.
6. Although the regulations do not impose any obligations concerning keeping records of running the support in the form presented above, for practical reasons we recommend creating a document/law describing the basic principles of running the collection/support, its purpose and criteria of transferring the funds to the needy (in particular emphasising the benefit’s character, e.g. defining social criteria – this issue should also be verified from the legal perspective).
7. If the Company receives financial/ in-kind contributions from other entities (e.g. other companies in the group), it would also be worthwhile to include in such a document information on the settlement of funds which have not been settled – i.e. return to the entities making the contributions.
We would like to draw your attention to the fact that the above comment is of general nature and does not exhaustively address tax issues related to the described form of support. Depending on the individual situation, selected issues may require additional analysis and confirmation (e.g. with respect to CIT consequences for the entity receiving cash/in-kind contributions and transferring the aid, VAT taxation in the case of support in kind).
It is possible that dedicated tax mechanisms enabling support for Ukraine will appear in the nearest future – we will keep you informed on the news in this respect.
We hope that the above information will be useful. Should you be interested in a more detailed discussion, please feel free to contact us.