The old rules
Under Polish tax law, employment income includes not only salary paid to the employee in the form of cash, but also the value of certain benefits the employee enjoys free of charge, or benefits for which the employee makes partial payment. Such fringe benefits include such items as private medical services, gym memberships, and a company car available for private purposes.
Therefore, if an employee is allowed to use a company car for private purposes, the employer should determine the value of the benefit and deduct income tax on that value accordingly. Such instances include situations in which an employee goes on holiday in the company car or drives it after working hours to go shopping or even to commute home from the office. If the employer does not assess a value and the taxable amount on the benefit, it bears the risk of withholding personal income tax and social insurance premiums in insufficient amounts.
An unquestioned advantage of the changes is the elimination of the risk which, until now, has been borne mainly by employers, in relation to determination of the monetary value of this type of employee benefit. The regulations applicable until now have required the employer to adopt market rental prices of cars for the purpose of pricing employee benefits, even though it is difficult to compare the situation of someone using a company car every day after working hours with the use of a short-term hire from a car rental company. This exposed employers to the risk of the tax office challenging their valuation of employee benefits.
Improvements for employers
Under the new regulations, the monetary value of the fringe benefit (taxable income) received by an employee in the form of using a company car for private purposes will be set at lump sum of PLN 250 per month if the employee uses a car with an engine capacity of up to 1.6 liters and PLN 400 per month for cars with larger engines.
Additionally, if an employee uses a company car for private purposes only for a certain time in a given month, the value of the benefit should be determined for each day of use in the amount of 1/30th of the above lump sum.
Further, under the new regulations, an employee using a company car for private purposes for partial payment will have taxable income equal to the difference between the lump-sum amount (PLN 250 or PLN 400 respectively) and the payment the employee makes to the employer as compensation for using the company car for private purposes.
Not in the clear
The new regulations do not address the auxiliary costs related to the use of a car, such as costs of maintenance, repairs, inspections, car wash, parking, and the like. It is not clear whether these costs, if fully paid by the employer, are also covered by the lump sum adopted in the regulations. Nor do the regulations address fuel consumption. However according to the standing of Ministry of Finance the new regulations do not cover the use of fuel. The employee should thus precisely account for the fuel consumed for private purposes. The remedy for the above mentioned doubts could be properly drafted internal policy for using company cars for private purposes.
Furthermore, the new regulations allow for reduction of the lump sum if the employee did not use the car for a certain period during the month, but this could raise doubts of interpretation. Apparently, every month the employee will have to declare how many days he or she used the car for private purposes. This issue also applies to employers who provide one car to be used by several employees. In such cases, it will be necessary to determine who used the car for private purposes and when.
Importantly, the new regulations refer only to staff hired under employment contracts, and do not cover e.g. board members who are not directly employed by the company but whose taxes are also withheld by the company as tax agent.[/vc_column_text][/vc_column][/vc_row]