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Until recently, “bad-debt relief” was a term known mainly to VAT taxpayers. They can use this procedure if their business partners fail to pay within the set period. From 1 January, such relief also applies to income taxes.
Bad-debt relief in personal income tax (PIT) and corporate income tax (CIT) is among the measures intended to reduce so-called payment bottlenecks. It will be introduced along the lines of the VAT relief mentioned above. Bad-debt relief in PIT and CIT is one of several solutions aimed at reducing those payment bottlenecks. Others include shortening payment deadlines, requiring the largest companies to inform the Ministry of Entrepreneurship and Technology about their payment practices, and allowing the president of the Office of Competition and Consumer Protection to pursue companies responsible for the biggest bottlenecks.
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Until recently, “bad-debt relief” was a term known mainly to VAT taxpayers. They can use this procedure if their business partners fail to pay within the set period. From 1 January, such relief also applies to income taxes. Bad-debt relief in personal income tax (PIT) and corporate income tax (CIT) is among the measures intended to reduce so-called payment bottlenecks. It will be introduced along the lines of the VAT relief mentioned above. Bad-debt relief in PIT and CIT is one of several solutions aimed at reducing those payment bottlenecks. Others include shortening payment deadlines, requiring the largest companies to inform the Ministry of Entrepreneurship and Technology about their payment practices, and allowing the president of the Office of Competition and Consumer Protection to pursue companies responsible for the biggest bottlenecks.
What is the purpose of bad-debt relief in PIT?
Bad-debt relief in PIT is intended as a remedy for cash-flow problems, which can sometimes even cause a small company to go bankrupt when it comes up against a large entity. The tax changes are supposed to address this. The Ministry of Entrepreneurship and Technology said the draft changes drew on the experiences of other EU countries, including France and the Netherlands. The new provisions have applied since 1 January 2020. They are intended to improve companies’ liquidity and support their development.
Bad-debt relief – how is it supposed to work?
For example, entrepreneurs who have issued invoices (for services performed or goods delivered) but have not yet received payment will be able to use bad-debt relief. It permits an adjustment – a reduction – of the tax base by the value of unpaid receivables. In practice, the relief will be available if the receivable remains unpaid or has not been transferred (in any form) for 90 days from the payment deadline specified in the contract or invoice.
How will bad-debt relief affect buyers?
Bad-debt relief will also affect buyers. If they do not settle their obligations on time, the new law will impose new duties on them. This involves an adjustment to the tax base, but in this case an increase. Once the 90-day period has passed, the tax base will be increased by the amount of the unpaid obligation. This is intended to motivate debtors to pay. It is worth noting that a debtor who later settles the obligation will acquire the right to reduce the tax base in part. This applies to the period in which the obligation is settled.
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