Bad debt relief in CIT and PIT. What should you know?
Until recently, "bad debt relief" is a term that was known primarily to VAT taxpayers. It is they who can use this procedure if they have not received payments from their contractors within the prescribed period. From January 1, such relief is also available in income taxes. Bad debt relief in personal income tax (PIT) and corporate income tax (CIT) are included in the group of activities aimed at reducing the so-called payment backlogs. They will be introduced in the manner of the aforementioned VAT relief. Bad debt relief in PIT and CIT is one of several solutions aimed at reducing the payment gridlocks mentioned above. They also include shortening the deadlines for payment, obliging the largest enterprises to inform about their payment practices, the Ministry of Entrepreneurship and Technology, and enabling the president of the Office of Competition and Consumer Protection to prosecute companies that cause the greatest bottlenecks.
Bad debt relief in PIT - what is the purpose of it?
Relief for bad debts in PIT is a remedy for problems with financial liquidity, which can often even result in the bankruptcy of small companies when they "clash" with a large entity. Tax changes are supposed to remedy this. The Ministry of Entrepreneurship and Technology informed that the draft of these changes was based on the experience of other countries belonging to the European Union - including France and the Netherlands. The new regulations apply from January 1, 2020. The assumption is that they should positively affect the financial liquidity of enterprises, as well as their development.
Bad debt relief - how is it supposed to work?
Bad debt relief will be available, for example, to entrepreneurs who have issued invoices (for services they have performed or for the delivery of goods they have organized), but have not yet received any money for it. Such a relief will allow the tax base to be adjusted (reduced) by the value of unpaid receivables. In practice, such relief will be available if the claim is not settled or sold (no matter in what form). And it is about a period of 90 days - counting from the date on which the payment deadline, specified in the contract or invoice, has expired.
How will bad debt relief affect purchasers?
Bad debt relief is also expected to have an impact on buyers. If they do not pay their obligations on time, the new law will impose new obligations on them. And we are talking about the correction of the tax base - and in this case it is about increasing it. If the above-mentioned 90-day period is exceeded, the tax base will be increased by the value of the unpaid liability. Thus, it is to motivate debtors to pay their liabilities. At the same time, it is worth noting that the debtor who wants to pay his liabilities later will be entitled to a partial reduction of the tax base. This will apply to the period in which he settles his obligation.
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