Additional Costs Are Coming for All Salary, Pension, Honorarium, Dividend Payers…

Amendments to the Income Tax Act and amendments to the Contributions Act, which have been in effect since January 1, 2013, have granted the Minister of Finance the authority, with the consent of the Minister of Labor and the Pension System, to prescribe a new method of reporting to the Tax Administration regarding the income paid by various entities to individuals and the calculated and paid amounts of income tax and contributions for mandatory insurance.

In the relevant ministries, amendments and supplements to the Income Tax Regulation have been prepared, introducing a new form, the Report on Income, Income Tax, and Surtax, as well as contributions for mandatory insurance, abbreviated as the JOPPD form, effective from January 1, 2014. The proposed amendments to the Income Tax Regulation are available on the Tax Administration’s website.

Extensive Preparations Due to the introduction of the new reporting method to the Tax Administration, most employers and other income payers will have to carry out extensive technical preparations. The JOPPD form will unify data on all types of income for which the payer is obliged to withhold tax at source, the amounts of contributions, and data on non-taxable income paid to individuals. The form will replace monthly reports on income from employment (ID), other income (IDD), contributions for persons insured under special circumstances (IDD-1), as well as annual reports on other income, income from capital, from insurance, from property rights (ID-1), and the R-Sm form.

This radical change in the reporting system aims to rationalize administration in various state institutions and enable the Tax Administration to receive more comprehensive information about individuals’ income more quickly. Instead of reporting to multiple institutions, taxpayers will submit one form to the Tax Administration, which will forward the data to others within the data exchange system between state bodies and organizations.

Tax Code In addition to tax purposes and mandatory insurance systems, data on realized income should serve to propose and undertake appropriate measures in the labor market and to manage social policy more rationally. The total data should provide a more comprehensive picture of each individual’s income tracked through their personal identification number (OIB), to ensure more consistent application of prescribed income thresholds set as conditions for obtaining various benefits (social assistance, child allowances, etc.). The data should be used for various purposes, making the new data collection model very complex due to broadly set requirements.

The display of a large number of data points and their use for their intended purpose is intended to be achieved through the encryption of reported data. An integral part of the Income Tax Regulation will also be five separate codes that designate the submitters of the form, recipients of income or insured persons, the type of taxable income being paid, the type of non-taxable income, and the method of payment for a specific income. The codes should serve to control the accuracy of calculated public levies and determine the impact of income on the rights of insured persons in mandatory insurance systems. In the section related to salary data, the period to which the salary relates and the hours worked to which the payment pertains will need to be reported. Financial data will include information on the gross amount of income, amounts of contributions from the salary and on it, individually per person, as well as amounts of income tax and surtax.

Daily Updates The biggest novelty is the obligation to report most non-taxable income. Employers will report data on paid reimbursements for transportation costs, reimbursements for business travel, jubilee awards, gifts for employees’ children, support for newborns, for sick leave or death of a family member, vacation bonuses, Christmas bonuses, severance pay, and other non-taxable income per recipient. Reimbursements for business travel will be reported based on the principle of paid income for these purposes after the official trip has been completed. Non-taxable scholarships for the education of students and pupils, sports scholarships, payments to amateur athletes, earnings through student services, union support, and support provided by local units will also be reported. The JOPPD form will be submitted to the Tax Administration by the end of the day on which the payment of a specific income was made, or at the latest the next working day. For non-taxable income, there will be an option to report data on the day of payment or on the form for the last day of the month in which the income was paid.

The introduction of the new JOPPD form brings additional costs for all salary, pension, other income, author fees, dividends, and profit share payers, as well as for payers of non-taxable income. These costs relate to demanding IT programs that will meet the needs for proper data reporting.