Accounting and tax aspects of aid to Ukraine – Q&A

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The war in Ukraine has been going on since 24 February. Refugees in need of support are constantly arriving in Poland. Not only ordinary Poles, but also companies and charity organizations have been helping from the very first day. The government has also introduced certain solutions, including but not limited to labor law or tax law, to help settle this kind of support.

Among the new legal acts important for Ukrainian citizens, there is a special act regulating issues related to assistance for them. It includes, among others, solutions concerning employment, obtaining a PESEL number, establishing a company in Poland or certain tax preferences. Our experts have prepared practical answers to the most common questions in the area of support for people from Ukraine. Enjoy the reading.

Table of contents:

  1. When are donations tax deductible?
  2. How to employ a Ukrainian citizen?
  3. Zero VAT for gratuitous supplies of goods and provision of services.
  4. How to deduct donations made to Ukraine from income?
  5. For what period of time are the citizens of Ukraine granted lawful residence?.
  6. Will a citizen of Ukraine get Polish PESEL no.?
  7. Is it possible to prolong legal stay in Poland?
  8. How to register the entry of the citizen of Ukraine into the territory of the Republic of Poland?
  9. Do citizens of Ukraine have the right to perform work in the territory of the Republic of Poland?
  10. Can a citizen of Ukraine set up a business in Poland?
  11. Will Ukrainian citizens be registered as unemployed?
  12. The exemption from tax on civil law transactions (PCC) for public benefit organizations.
  13. Will citizens of Ukraine be entitled to benefits from the state budget?
  14. Will a Ukrainian citizen have to pay tax on a donation received?
  15. Will tax be due on funds received by Poles from the state for each refugee they host?
  16. How to settle the taxation of the subsidy received by a Polish company from the foreign headquarters in order to finance the aid for Ukrainian citizens and their families?

1.      When are donations tax deductible?

Many companies choose to support Ukrainian citizens who are fleeing to Poland from the war. Aid is also delivered directly to the territory of Ukraine. Can expenses incurred for this purpose be included in company tax-deductible costs?

Yes. Such a possibility is provided by the special act on assistance to citizens of Ukraine, which was signed by the President on March 12, 2022, and published in the Journal of Laws under item 583. It provides for the possibility of recognizing expenditures on such assistance as tax deductible costs (both for PIT and CIT purposes), provided, however, that such assistance is channeled through specified non-governmental organizations and local governments. Their list includes:

  • public benefit organizations, but it is not required that they have the formal status of a public benefit organization (OPP) entitling them to receive 1% of the tax; these may be organizations governed by Polish or equivalent legislation regulating public benefit activities in Ukraine;
  • local government units,
  • Governmental Strategic Reserves Agency (RARS),
  • entities providing medical care or emergency medical services in Poland or Ukraine.

Therefore, it is not possible to include expenses related to the assistance provided directly to the Ukrainian citizen as an individual in tax deductible costs. The act does not distinguish whether the assistance is sent to Ukraine or provided to refugees in Poland, so it seems that both forms of assistance enjoy tax preferences.

Expenses for the production or purchase price of goods and rights donated as assistance, as well as expenses incurred for gratuitous benefits (e.g. free medical assistance) will be tax deductible. The tax preferential treatment is applicable from February 24 to December 31, 2022.

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2.      How to employ a Ukrainian citizen?

Many people from Ukraine plan to stay in Poland with the hope of returning to their homeland. Until that happens, however, they will try to get a job in Poland. How to employ a Ukrainian citizen?

Here, too, one must look to the provisions of the Special Act. A citizen of Ukraine has the right to work in Poland during the period of stay in accordance with the applicable legislation if: his/her stay in the territory of the Republic of Poland is considered legal or he/she is a citizen of Ukraine lawfully residing in Poland, provided that the entity assigning work will notify (via praca.gov.pl) within 14 days from the date of taking up employment by the citizen of Ukraine the district labor office competent for the seat or place of residence of the entity about the assignment of work to such a person. Such notification must provide information on the entity assigning work to the Ukrainian citizen (employer) and certain personal data of the Ukrainian citizen (employee).

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3.      Zero VAT for gratuitous supplies of goods and provision of services

The Minister of Finance has issued a special ordinance regarding the possibility of applying a preferential VAT rate for assistance services. What supplies of goods and provision services can be subject to 0% VAT?

The ordinance of the Minister of Finance is dated March 3, 2022 and was published in the Journal of Laws a day later under item 531. It introduces a 0% VAT rate for gratuitous supplies of goods or provision of services for the purpose of assisting victims of warfare in Ukraine.

The 0% VAT rate applies to goods supplied and services provided from 24 February this year, i.e. from the beginning of Russia’s military aggression against Ukraine. It applies to gratuitous supplies of goods and services for the purpose of assisting victims of the effects of hostilities in Ukraine.

However, the reduced VAT rate shall apply only to supplies of goods or provision of services to:

  • the Governmental Strategic Reserves Agency (RARS);
  • medical entities within the meaning of Article 4(1) of the Act of 15 April 2011 on medical activity;
  • local government units,

i.e. entities acting as key coordinators and intermediaries for the assistance provided.

However, in order to take advantage of this preferential treatment, certain formalities must be completed. The 0% VAT rate will apply on the condition that a written agreement is concluded between the taxpayer and one of the designated entities, from which it will follow that the donated goods or services will be related to the assistance of victims of the war in Ukraine. This is to ensure a minimum of control over the targeting of the introduced preferential treatment and to allow taxpayers to target their assistance to entities that guarantee the correct use of the donated goods or services.

As emphasized by the Ministry of Finance, the signed documents may have a simplified form, e.g. a donation agreement may have a form of an electronically signed statement of will or a scan of a handwritten agreement signed by the donor, sent by e-mail to the entity to which the gratuitous services are performed or goods are supplied Documents sent in this manner should also be signed by the recipients of these goods or services. It should be clear from the documentation that the statement of will was made by both parties.

The 0% VAT rate for the indicated transactions will be applicable until 30 June 2022. At the same time, the Ministry of Finance assures that, if necessary, the possibility of applying the preferential VAT rate will be extended.

It should be emphasized that in the case of gratuitous transfer of goods directly to individuals or other entities than those mentioned above, the reduced VAT rate will unfortunately not apply.

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4.      How to deduct donations made to Ukraine from income?

Donations to Ukraine and its citizens are flowing by the truckload, both from ordinary citizens and various aid organizations. Is it possible to include such donations in tax returns?

Yes, but not in all cases. Tax provisions allow for deducting certain donations made both in cash and in-kind. This, however, only applies to donations made for public benefit activities. Such activities are carried out by non-governmental organizations (NGOs), which are both Public Benefit Organizations (OPP) and foundations and associations without such status. The tax preferential treatment applies to donations made to such organizations operating within the EU and EEA. It should be emphasized that in the case of donations made to individuals – it is not possible to deduct the value of the donation from the taxpayer’s income.

The donated value is deducted from the tax base, which is the amount of income. For individuals (PIT), the deduction can be up to 6% of income. For corporations (CIT) – up to 10% of income.

This means that individuals and companies that help Ukraine by donating money or in-kind donations through certain NGOs operating in the EU and the EEA can reduce their tax burden by deducting the donations in their annual PIT or CIT return.

In order for this to be possible, it is necessary to document the fact of the donation. In the case of a cash donation, with a proof of payment into a bank account. And in the case of a donation in kind, with a document indicating the donor’s details and the value of the donation, together with a statement from the recipient that the donation has been accepted.

This form of preferential treatment is available to taxpayers filing:

  • PIT-36 (a form used to account for income taxed under general progressive tax regime),
  • PIT-37 (a form used by natural persons to account for income taxed under general progressive tax regime),
  • PIT-28 (a form for taxpayers who have opted for lump-sum tax on registered revenue),
  • CIT-8 (tax return on the amount of income earned / loss incurred by a corporate income tax payer),
  • CIT-8AB (tax return on the amount of income / loss made by a tax capital group).

It is also worth noting that a Ukrainian citizen donated by the NGO does not have to pay personal income tax on the support received. This is because the use of humanitarian aid from non-governmental organizations does not generate tax liability for this tax.

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5.      For what period of time are the citizens of Ukraine granted lawful residence?

Refugees from Ukraine, who arrived in Poland lawfully on 24 February 2022 and plan to stay here (they do not treat Poland as a transit country), have legal status of residence in Poland. For how long and what is the legal basis for this rule?

Relevant provisions can again be found in the special act regulating aid to Ukraine and its citizens. It provides a legal basis for recognizing the stay of citizens of Ukraine as legal during the period of 18 months starting from 24 February 2022, when they legally entered the territory of the Republic of Poland directly from the territory of Ukraine, until the date specified in a special decree of the Council of Ministers. Importantly, this rule does not apply to those Ukrainians who are already legally residing in Poland on the basis of previous permits or who have a work permit.

It is also important to note that the 18 months of legal stay in Poland under the indicated rules will apply only to citizens of Ukraine who have declared their intention to continue to stay in Poland.

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6.      Will a citizen of Ukraine get Polish PESEL no.?

People fleeing the war in Ukraine are looking to Poland for lawful residency and work options. Will they get a Polish PESEL number?

Yes. These rules are once again regulated by the special act assistance to citizens of Ukraine. Its provisions assume that a PESEL number will be assigned to Ukrainian citizens who came to Poland in connection with military operations on Ukrainian territory. PESEL is intended to allow numerous public services to be provided to these individuals.

Citizens of Ukraine will be granted a special mode for obtaining this number. It will be issued upon application, which has to include basic details. The application shall be accompanied by a photograph of the person whose PESEL number is being issued, and their fingerprints will be taken.

In addition, Ukrainian citizens, along with their PESEL number, will gain access to a trusted profile.

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7.      Is it possible to prolong legal stay in Poland?

Let’s assume that a Ukrainian citizen obtains confirmation of lawful residence for 18 months. Will it be possible to extend this time?

Yes. According to the provisions of the special act, a Ukrainian citizen whose stay is or was considered legal will, upon request, be granted a temporary residence permit. Temporary residence permits will be granted once for a period of 3 years, counting from the date of issuance of the decision. The application shall be submitted no earlier than after 9 months from the date of entry to Poland and no later than after 18 months from 24 February 2022, and an application submitted before 9 months from the date of entry shall be ignored by the Voivode (provincial governor).

A temporary residence permit is granted by the Voivode competent for the place of residence of the Ukrainian citizen on the day the application is submitted. A person who obtains a temporary residence permit is entitled to work in Poland without the need to obtain a work permit.

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8.      How to register the entry of the citizen of Ukraine into the territory of the Republic of Poland?

Many people fleeing the war in Ukraine are not carrying the necessary documents. Can they cross the Polish border nonetheless?

Yes. In such cases, the registration of the Ukrainian citizen is carried out by the commanding officer of the Polish Border Guard post. If the entry of the Ukrainian citizen to Poland was not registered during the border control, the registration of the stay will be possible on request of the refugee. The stay on the territory of the Republic of Poland of such a person will be registered after the application for a PESEL number has been submitted to the commune/municipality authority.

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9.      Do citizens of Ukraine have the right to perform work in the territory of the Republic of Poland?

The Polish authorities have assured that the regulations regarding the employment of Ukrainians in Poland will be simplified. Can citizens from Ukraine indeed work legally in Poland?

According to the provisions of the special act, a citizen of Ukraine has the right to work in Poland during the period of stay in accordance with the applicable legislation if: his/her stay in the territory of the Republic of Poland is considered legal or he/she is a citizen of Ukraine legally residing in Poland, provided that the entity assigning work will notify (via praca.gov.pl) within 14 days from the date of taking up employment by the citizen of Ukraine the district labor office competent for the seat or place of residence of the entity about the assignment of work to such a person. The notification shall include the information indicated in the act, regarding the entity assigning work (employer) to the citizen of Ukraine and certain personal data of the citizen of Ukraine (employee).

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10.   Can a citizen of Ukraine set up a business in Poland?

Do Polish regulations allow Ukrainian citizens to register and run a business?

A citizen of Ukraine with lawful residence in Poland may register and carry out non-agricultural business activity on the same conditions as Polish citizens. However, running a business is possible only if the Ukrainian citizen has previously obtained a PESEL number.

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11.   Will Ukrainian citizens be registered as unemployed?

Some people who came to Poland because of the war in Ukraine will not find employment right away. Will they be registered as unemployed?

A citizen of Ukraine, if his/her stay on the territory of the Republic of Poland is considered legal, may register and be recognized as an unemployed person or a person seeking work with all the resulting consequences.

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12.   The exemption from tax on civil law transactions (PCC) for public benefit organizations

The support and aid donated by non-profit organizations to Ukraine and its citizens is now invaluable. However, the question arises as to whether organizations will be subject to the tax on civil law transactions for such organizations?

The answer can be found in the Act on The Tax On Civil Law Transactions (PCC).  It stipulates that public benefit organizations are exempt from tax if they perform civil law transactions exclusively in connection with unpaid public benefit activity within the meaning of the provisions on public benefit activity and volunteerism.

Exemption from PCC is not limited – if the activities are performed by PBOs and they are free of charge, they will in any case be exempt from PCC.

It is worth adding that PBOs will also benefit from exemption from CIT, real estate tax, stamp duty or court fees – with respect to their public benefit activities. It is, however, worth remembering that some specific exemptions may be governed by separate regulations.

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13.   Will citizens of Ukraine be entitled to benefits from the state budget?

Will citizens of Ukraine be entitled to receive benefits or other allowances from the state budget?

Since an Ukrainian citizen will be able to register as unemployed, he/she will also be entitled to receive unemployment benefits. In addition, an Ukrainian citizen, once his/her stay in Poland is legal (all the related formalities have been completed), is also entitled to: family benefits, child care benefit, 'good start’ benefit, family care capital, subsidies to reduce the fee paid by the parent for the stay of a child in a nursery, children’s club or daytime babysitter. A citizen of Ukraine with lawful residence in Poland and an assigned PESEL number may also be granted cash and non-cash benefits on the basis of the provisions on social assistance.

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14.   Will a Ukrainian citizen have to pay tax on a donation received?

Ukrainian citizens benefit from donations offered to them by Poles and Polish organizations. Will any tax obligations arise on their side, as the donee?

It depends on the amount of the donation received. In the case of donations made in the territory of Poland to Ukrainians not related to the donor, it will be possible for the beneficiaries to take advantage of the tax exemption for donations up to the amount of PLN 4,902. This limit applies to donations received from a single person or organization over a 5-year period; therefore, the value of donations received from a single donor is added together for the last 5 years. If the donated amount or value of in-kind donations is higher, it will be necessary to pay the inheritance and gift tax.

Initially, the draft Special Act proposed that Ukrainian citizens coming to Poland would enjoy an exemption from inheritance and gift tax for any gifts received between February 24 and December 30, 2022. However, this exemption was removed during the parliamentary work. Donations to Ukrainians coming to Poland with respect to inheritance and donation tax must therefore be taxed in accordance with the currently applicable rules.

Ukrainian citizens arriving in Poland as a result of hostilities are also exempt from income tax (PIT) on benefits received from individuals and companies. Consequently, they will not pay PIT on aid in the form of e.g. providing housing, food or medical treatment. This tax preference will apply from February 24 to December 31, 2022.

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15.   Will tax be due on funds received by Poles from the state for each refugee they host?

Polish society is actively helping refugees. Many people took those in need under their roof. The special act introduces a special benefit for Polish families (40 PLN per day per refugee). This benefit is time limited. Will a person who hosts refugees and receives a benefit have to tax it?

No. The special act provides some solutions here as well. Its provisions introduced, among others, tax (PIT and CIT) exemption for cash benefits paid to taxpayers who provide assistance to refugees. It applies to those who will take under their roof war refugees from Ukraine and will receive additional funds from the state for each refugee. With the tax preference, the benefits received will be tax-free.

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16.   How to settle the taxation of the subsidy received by a Polish company from the foreign headquarters in order to finance the aid for Ukrainian citizens and their families?

Due to the ongoing war in Ukraine, a Company intends to bring Ukrainian citizens and their families to Poland. The Company will receive funds from its overseas headquarters for this purpose, which will flow directly into a dedicated bank account opened by the Company. Will the funds received be taxable revenue for the Company?

The CIT Act does not provide for a general definition of revenue. Nevertheless, it follows from the decisions of the administrative courts, as well as from the doctrine, that only a material gain of a permanent, unconditional and definitive nature can be taxable revenue. In other words, revenue should be understood as a gain that is non-refundable and that the taxpayer can dispose of as an owner.

Consequently, funds transferred to the Company’s bank account by the overseas headquarters in order to be disbursed for the purpose of providing aid to Ukrainian citizens will not constitute taxable revenue for the Company due to the non-definitive nature of such gain.

It is strongly recommended that an agreement (e.g., in the form of a bilateral agreement) be entered into between the Company and its overseas headquarters to document the transfer of funds and its nature, in which the parties:

  • would emphasize the charitable purpose of the donated funds;
  • would define the rules and manner in which they would be spent, as well as documented;
  • would provide for the obligation of the Company Poland to repay the funds if they were not fully expended for the needs of the arriving Ukrainians by a specified date;
  • would include a clear provision that the Company Poland is not entitled to dispose of the received funds as its own, i.e. it cannot spend them for the purposes of its business activity.

It is also advisable to collect all documents related to the spending of funds received from the overseas headquarters.

It is important to add that the expenses incurred by the Company from the funds received from the overseas headquarters will not constitute tax deductible expenses for the Company – as such expenses will not be financed from the funds owned by the Company.

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