PIT and CIT. Relief for bad debts

As early as 2018, after the amendment of the Personal Income Tax (PIT) Act and Corporate Income Tax (CIT) Act, a new tax relief for bad debts will be introduced for taxpayers.

This relief will allow the sellers to deduct from their income the receivables for deliveries of goods and services that have not been repaid yet. Meanwhile, the buyers of these goods and services will be obliged to do the opposite – increase their income by their unpaid debts. This construct is parallel to the one used in the goods and services tax (VAT).

At the same time, the new solution is a derogation from the PIT principle, according to which the revenue is already generated from the amounts due, even if they have not been paid yet.

Using the bad debt relief will only be possible if the following criteria are met:

• the debtor or the creditor are not in the process of reconstruction according to the Restructuring Law, the insolvency proceedings or the liquidation proceedings,
• from the date of issuance of the invoice or the bill or from the date of the conclusion of the contract documenting the unsettled receivables a 2-year period will not expire starting from the end of the calendar year in which the invoice or the bill is issued or the contract is concluded
• the creditor and the debtor:
  • are taxpayers of income tax, who have a place of residence, registered seat or a place of management in Poland
    or
  • are taxpayers of income tax, who do not have a place of residence, registered seat or place of management in Poland, and who receive income on the territory of Poland through a foreign enterprise, and the claim or liability arises from a commercial transaction from which income or cost of income has been assigned to that foreign enterprise.
    However, it should be borne in mind that this type of relief, referred to as bad debt relief, will apply only to transactions between business entities.

Author of the text: Patryk Szulc
Translate: Beata Wiśniewska
Source of information: https://inforfk.pl