Accounts receivable from an unpaid account, according to taxation standards, are considered tax income, which is the basis of income for calculating tax liability. This makes you to pay income tax, regardless of whether the bill was actually paid. Bad debt relief is the opportunity to adjust the tax if the customer fails to pay the bill. Until now, only current VAT taxpayer entrepreneurs were eligible for this right. Starting from January 1, 2020, PIT and CIT taxpayers will also be able to use the so-called bad debt relief. This allows creditor to reduce the tax base by the amount of the claim (included in the income) if the debt has not been settled or sold within 90 days from the date of expiration of its payment term, which is indicated in the contract or in the invoice (bill). This change is intended to help eliminate payment backlogs in companies and thereby facilitate their business operations.
In accordance with Section 18 F of the Law of 15.02.1992 on corporate income tax and Section 26 I of the Law of 26.07.1991 on personal income tax (Legislative Bulletin of 2019, position 1387 as amended), basis of taxation is:
- The creditor’s profit can be reduced by the amount of debt owed to income (which has not been settled), while the decrease is reflected in the amended tax return filed for the tax year in which 90 days have passed from the deadline for payment indicated in the invoice or contract;
- The debtor's profit is subject to increase by the amount of obligations that have not been settled, while the increase is visible in the tax return, similarly to the case with corrections from the creditor.
In fact, taxable income may be reduced by the amount of receivables that have not been settled or sold.
It is worth noting that the debtor is obliged to increase the amount of his obligations to pay in the tax return, if he has not made the payment within the above terms. Although it is an obligation for the debtors, for the creditors it is an opportunity that they can, but should not take.
The benefit for doubtful income tax debt came into force on January 1, 2020. To apply this benefit, the following conditions must be done:
- The debtor was not in the process of restructuring, bankruptcy proceedings or in the liquidation process.
- From the date of invoice or conclusion of an agreement confirming the debt, is less than 2 years have passed.
- A commercial transaction was concluded as part of the activities of the creditor and the activities of the debtor, the income of which is taxed in Poland.
The exemption will apply to trading operations documented by an invoice, invoice or contract with a due date after December 31, 2019.