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Polish Tax Returns Explained

Polish Tax Returns and Compliance Explained

If you are a business owner or self employed then you’ll see to submit a tax return. A tax return is form on which a taxpayer makes an annual statement of income and personal circumstances, used by the tax authorities to assess liability for tax. Even if you have an accountant manage your finances and tax returns, it is always important to understand the process to avoid any future problems. Here is the ultimate guide to Polish Tax Returns:

When are tax returns due? That is, what is the tax return due date? 

30 April.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Poland?

Poland operates a monthly tax payment system.

The Polish tax system requires individuals to pay 11 monthly tax advances from foreign employment relationships, (expatriates included). The tax advance for December is declared at the time of lodging the annual tax return by 30 April of the following year. No tax declarations need to be filed during the tax year. The tax payment for December should be paid at the same time as the annual declaration is filed. The annual tax declaration should be submitted by 30 April of the following year. The payment of the tax due is transferred to the Treasury Office bank account on the same date.

In the case of local employment contracts, the Polish employer should withhold the tax advance payments from the employee’s pay each month.

Residents

Where residents work under an employment contract with a Polish company and perform the work in a territory of Poland, the employer (tax remitter) withholds tax at progressive tax rates of 18 percent and 32 percent of the taxable base. These rates are applied if the employee’s remuneration exceeds the respective income tax threshold. The tax withheld by the employer must be paid to the tax office by the 20th of the month following the month in which the tax was withheld. Residents are obliged to tax their worldwide income in the annual tax return with consideration of appropriate double tax agreements.

Where individuals perform work in Poland as employees of a foreign (non-Polish company) the foreign employer does not have a withholding tax obligation, and the employees themselves should pay the tax advances not later than the 20th of the month following the month in which the income is derived.

There are specific detailed provisions concerning the joint taxation of married taxpayers.

Non-residents

Where non-residents work under an employment contract with a Polish company and perform the work on territory of Poland, the employer (tax remitter) withholds tax at progressive tax rates of 18 percent and 32 percent of the taxable base. These rates are applied if the employee’s remuneration exceeds the respective income tax threshold. The tax withheld by the employer must be paid to the tax office by the 20th of the month following the month in which the tax was withheld. Non-residents are only taxable on Polish source income (this includes income for work performed in Poland, wherever paid).

Where individuals perform work in Poland as employees of a foreign (non-Polish company) the foreign employer does not have a withholding tax obligation, and the employees themselves should pay the tax advances not later than the 20th of the month following the month in which the income is derived.

There are specific detailed provisions concerning income from personal activity (such as, personal service contract, revenues earned under the contracts of management, revenues received by persons who sit on boards of management, supervisory boards, commissions, and other decision-making bodies of legal persons). In the case of non-residents, such income is subject to a 20 percent flat rate final tax, which is paid by the 20th of the following month.




Tax rates

What are the current income tax rates for residents and non-residents in Poland?

In 2018, Poland applies a progressive income tax scale to individuals; these rates are set out below.

The official currency of Poland is the Poland Zloty (PLN) – USD1 is approximately PLN 3.5 and EUR1 is approximately PLN4.3.

Income tax table for 2018

Taxable income over (PLN) Taxable income up to (PLN) Tax applicable
0 85,528.00 18 percent
85,528.00 Over 15395,04 plus 32 percent of excess over 85,528.00

 

2018
Taxable Income (PLN)
Over But not over Tax credit (PLN)
0 8,000 1440
8,000 13,000 between 1440 and 556.02
13,000 85,528 556.02
85,528 127,000 between 556.02 and 0
127,000 No limit 0

The statutory deductible cost of earning income stands at PLN111.25 per month.

In certain cases, for lower earners, a small personal allowance (tax free amount) can be claimed.

Residents

Residents as a rule pay tax on the basis of the aforementioned progressive rate scale.

Non-residents

Non-residents, similarly to residents, pay tax on the basis of the progressive tax rate scale if they work under an employment contract. Specific income sources (for example, personal service contract, or management contract) are subject to 20 percent flat rate final tax.

Please note that capital gains and investment income are taxed under a separate tax regime of 19 percent.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Poland?

Polish income tax law provides that an individual whose place of residence lies within Poland shall be liable to Polish income tax on his/her worldwide income. In these circumstances, the individual is considered to have an unlimited tax liability.

Conversely, if an individual whose place of residence is not Poland, the individual has a limited Polish tax liability. That is, the individual is only liable to Polish income tax in respect of Polish-sourced income.

An individual is defined as resident of Poland, if at least one below-mentioned condition is fulfilled:

  • the individual has closer personal or economic relations with Poland (center of vital interests)
  • the individual stays on the territory of Poland longer than 183 days in a given fiscal year.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

If the individual remains in Poland more than 183 days in a given fiscal year he/she generally should be considered a Polish tax resident for that year, regardless of the location of his centre of vital interests. The 183 days is counted over the course of the whole year and does not depend on the start or end date of assignments.

Split year treatment, although not specifically mentioned in Polish tax legislation, is generally accepted in practice where an individual first arrives in Poland or leaves permanently or for an extended period of time.

What if the assignee enters the country before their assignment begins?

The entering of the host country before the assignment begins does not result in any special procedures related to personal income tax for the assignee. However, for computation of the number of days an assignee stays in Poland, the days before the assignment begins are counted and when the period exceeds 183 days, the assignee acquires an unlimited tax liability. If the assignee is a resident of another country as well, the appropriate double tax agreement should be applied.




Termination of residence

Are there any tax compliance requirements when leaving Poland?

The termination of an expatriate’s residence in Poland does not result in any special procedures related to personal income tax. However, a registration update form should be lodged indicating a change of address. In the case of non-residents, then strictly speaking, the individual would also be obliged to file an annual tax return for the year of departure prior to their departure.

What if the assignee comes back for a trip after residency has terminated?

Any presence in Poland is taken into account when determining the 183 day period of tax residency. Hence such visits should be taken into consideration when determining the 183 day period for tax residency.

Communication between immigration and taxation authorities

Do the immigration authorities in Poland provide information to the local taxation authorities regarding when a person enters or leaves Poland?

The immigration and tax authorities are separate bodies and generally do not communicate between each other with regard to persons entering or leaving the country.

Economic employer approach

Do the taxation authorities in Poland adopt the economic employer approach1 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Poland considering the adoption of this interpretation of economic employer in the future?

The concept of economic employer is not formalized in Polish tax law, however, in practice the authorities should as a rule apply the principles set down by the OECD.

De minimus number of days

Are there a de minimus number of days2 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

Not applicable.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a rule, all types of remuneration and benefits received by an individual in the form of both in-cash and in-kind earnings resulting from employment constitute taxable income regardless of where paid. Typical items, which are taxable and form part of an expatriate package, include the following:

  • base salary
  • payments for overtime
  • various allowances (some only over a certain limit)
  • awards and bonuses
  • cash equivalents for holiday leave not used
  • pecuniary performance made on behalf of employee
  • value for other benefits-in-kind (non-pecuniary performance)
  • housing provided by the employer
  • payments made by the employer for the benefit of an expatriate in his/her home country, either to provide retirement benefits tailored to the individual employee or to all or the majority of employees.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Poland? If so, please provide a general definition of these areas.

The following sources of income are generally exempt from personal taxation:

  • insurance receipts (personal and property)
  • per diem allowances and other reimbursed expenses, where business trip-related
  • income earned abroad, if international or bilateral agreements so provide.

Expatriate concessions

Are there any concessions made for expatriates in Poland?

There are no special exclusions from taxable income for expatriates other than for those whose income is earned for work in Poland funded by certain international financial institutions and by foreign governments on the basis of appropriate agreements.

Special concessions may be applied when an expatriate is a non-resident for tax purposes in Poland and provides services under a personal service contract, or for being a member of the management board or supervisory board. In such cases, the taxpayer may benefit from a final flat rate tax of 20 percent or lower if the relevant double taxation treaty so provides.

Salary earned from working abroad

Is salary earned from working abroad taxed in Poland? If so, how?

The taxation of salary earned from working abroad depends on an individual’s residency status and source of income.

As a rule, any remuneration derived by a tax resident individual is subject to tax in Poland.

If the individual is a Polish resident remunerated based on an employment contract with a Polish entity, the tax remitter is obliged to withhold tax advances during the year, unless that income is also taxable in the other country, in which case withholding may be discontinued.

Non-residents are generally not subject to Polish tax on income for work performed outside Poland.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Poland? If so, how?

Generally, gains on the disposal of investment assets are subject to a special tax regime. Instead of being accumulated together with other items, they are taxed separately at a special flat rate unless specifically exempt.

Capital gains gained abroad, such as interest, dividends, income from capital funds, income from sale of shares, and stock on foreign markets, are subject to a 19 percent flat rate tax (a final tax). In addition, if such income was taxed abroad, the foreign tax can be proportionally deducted from the Polish tax liability (proportional deduction).

Dividends, interest, and rental income

Dividends and interest are subject to a 19 percent flat rate final tax.

Rental income is subject to tax in Poland. The individual (not conducting business activity) may choose one of two existing forms of taxation of rental income.

  • Taxation under general rules: The income (which may be decreased by relevant expenses) is subject to tax based on the progressive scale (18 percent and 32 percent), tax advances are paid monthly.
  • Flat rate tax: The proceeds are subject to the 8.5 percent flat rate tax and 12.00 percent flat rate (over PLN 100,000). In this case no expenses are deductible. Tax is paid monthly or quarterly under certain conditions.

Gains from stock option exercises

Residency status Taxable at:
Grant Vest Exercise
Resident N Y/N Y
Non-resident N Y/N Y
Other (if applicable) N/A N/A N/A

On 10 November 2017, the Senate in Poland adopted amendments to the Personal income tax (PIT) Act, the Corporate income tax (CIT) Act and the Flat-rate income tax Act on certain incomes earned by natural persons. The bill is currently awaiting the President’s signature.

The amendments contain a number of significant changes regarding the taxation of revenues generated through incentive programmes based on, among others, shares and derivative financial instruments.

Incentive schemes based on shares.

The new regulations extend the exemption from taxation stipulated by article 24 section 11, thus clarifying the moment of obtaining revenue, indicating that when one obtains revenue under a share-based incentive programme, taxable income arises only at the time of the sale of shares. Preceding events occurring within the framework of the incentive programs (e.g. the acquisition of a derivative financial instrument, free-of-charge acquisition of shares or their purchase at a preferential prices,) are not taxable.

In order to apply the exemption, the condition must be met that such shares must be acquired through incentive schemes. The definition of an incentive scheme and the concept of a parent company are defined in the PIT Act.

The incentive scheme must be a remuneration system established on the basis of a resolution of the general meeting of shareholders of a joint stock company, with whom the taxpayer (receiving an award in the form of shares of that company) has an employment relationship or a civil law-based relationship or a joint stock company, which is a parent company in relation to the company, with which the taxpayer (receiving an award in the form of shares of the parent company) has an employment relationship or a civil law-based relationship, under which the taxpayer is entitled to receive shares either directly or as a result of realization of derivative financial instruments or as a result of realizing other rights.

A parent company should be understood as a joint stock company which is a parent company within the meaning of article 3 section 1 item 37 of the Accounting Act of 29 September 1994 in relation to the company with which the taxpayer has an employment relationship or a civil law-based relationship.

A significant change compared to current regulations is that the exemption of the awards in the form of shares will be extended to shares of companies seated outside the EU / EEA. The preferential treatment applies to taxpayers acquiring shares of companies whose registered office or management is located on the territory of countries with which Poland has concluded a double taxation treaty.

Incentive schemes based on derivative financial instruments.

Incentive bonus schemes based on derivative financial instruments have become failry popular in recent years in Poland, facilitating payment of incentive compensation being subject to taxation at the 19%. tax rate as capital gains.

In line with the standpoint of the Ministry of Finance, such revenue should, in fact, be considered as being derived from employment, independent personal services or as income from other sources and be taxed according to the progressive tax scale (of 18% and 32%). The amended regulations clearly stipulate that proceeds from the exercise of derivative financial instruments or other derivative rights from a capital gains source of income, where such derivative financial instruments or other derivative rights from a capital gains source of income were previously acquired free-of-charge, should be qualified as income from the particular source from which the derivative financial instruments or other derivative rights from a capital gains source of income were obtained (this does not apply to the scenario described earlier regarding incentive schemes, to which the exemption set out by article 24 section 11 applies). As an example, if the derivative instrument was acquired under a scheme operated by the taxpayer’s employer, the income from its exercise will be qualified as income from employment.

Foreign exchange gains and losses

Positive exchange rate differences constitute taxable income (gain). Negative exchange rate differences may constitute costs of earning income, so in this context they may be treated as a loss.

Principal residence gains and losses

Not applicable.

Capital losses

A loss from a source of revenue (such as, capital gains) incurred in a given fiscal year may be deducted from the income earned from that source during the five subsequent tax years. However, the amount of such deduction in any of these years may not be higher than 50 percent of the amount of such loss.

Personal use items

Not applicable.

Gifts

The recipient of a gift is subject to gift tax under the following circumstances.

  • The object of transaction is located on Poland’s territory.
  • The object of transaction is outside Poland and the beneficent of gift is a Polish citizen or person who has place of permanent stay in Poland. The tax is assessed in accordance of value of the property at varying rates, depending on the relationship between the donor and beneficiary as follows:
    1. 3 percent – 7 percent for spouses, children, parents, brothers, and sisters
    2. 7 percent – 12 percent for nieces and nephews, spouses of brothers and sisters
    3. 12 percent – 20 percent for most others.

Notwithstanding of the above, the acquisition of ownership rights or property rights through donation between certain close family members is exempt from taxation (without limits), if certain specific conditions are met (e.g. notification the tax authorities regarding the acquisition through the donation by specified time limits).

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Poland? If so, please discuss?

There is no additional capital gains tax in Poland. The 19 percent flat rate tax is the final tax.

Are there capital gains tax exceptions in Poland? If so, please discuss?

Shares received as an inheritance or donation may potentially be exempted. In addition, the nominal value of shares in a company having legal personality or contributions to a cooperative—taken up in exchange for a non-cash contribution in the form of an enterprise or an organized part is exempt.

Pre-CGT assets

There are no CGT assets.

Deemed disposal and acquisition

The moment of disposal of capital gains constitutes a taxable income. The moment of acquisition of capital gains is, as a rule, tax neutral. However, it represents an allowable expense at the moment of disposal.

General deductions from income

What are the general deductions from income allowed in Poland?

A monthly statutory deduction is applicable to the income obtained by an individual in a given month. The statutory deductible cost of earning income stands at PLN111.25 per month (in the case of, for instance, employment income). Employee’s social security contributions are also deductible.

Other deductions include donations made, up to the value of a set amount of pre-tax income before donations

  1. The maximum limit for the relief for donations made to charitable, scientific, technical, educational, and cultural bodies, religious, environmental, and military defense bodies is 6 percent of income. In addition, taxpayers benefiting from this relief are obliged to indicate in the tax return the amount of donation, the amount of tax deduction and information about the recipient, in particular their name and address. The donation should be properly documented (such as in the case where the donation is not made in cash, there should be a confirmation from the beneficent that it was actually received). In the case of cash donations, confirmation in the form of bank transfer order is required.



Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Poland?

In the case of tax equalized employees where the employer pays the host tax liability of the employee, this is considered a benefit in kind for the individual. Both current year gross up and the rollover method are applied in practice in Poland to account for this benefit.

Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Poland? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

The tax advances are withheld and paid monthly to the tax office during the fiscal year. In this context they are withheld as you earn.

Pay-as-you-earn (PAYE) withholding

An employer is responsible for personal income tax withholdings based on remuneration received during given month. For tax purposes, gross remuneration is reduced by standard cost deduction and the employee’s part of social insurance contributions.

PAYE installments

Monthly installments are computed using progressive tax rates. The next higher level is computed from the next month after income from the beginning of the year reached a given bracket.

When are estimates/prepayments/withholding of tax due in Poland? For example: monthly, annually, both, and so on.

As a rule, tax is withheld (prepaid) monthly as tax advances for personal income tax. After the end of fiscal year, a final tax calculation is carried out when preparing the tax return, which takes into account the total annual income and tax advances/withholding paid during the course of the year. Depending on the final calculation, the individual is obliged either to pay some additional tax (the annual tax is higher than tax advances paid in the course of the year) or the taxpayer may receive a tax refund (the annual tax is lower than tax advances paid in the course of the year).

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Poland? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Poland has a broad network of bilateral tax treaties. Polish domestic tax regulations also provide methods to avoid double taxation of income taxed outside of Poland.

General tax credits

What are the general tax credits that may be claimed in Poland? Please list below.

In Poland, against the taxpayer’s regular tax liability, child care relief can be claimed. The standard deduction is PLN1,112.04 per child (PLN92.67 monthly). This relief is prorated in cases where the child was with the parent for only part of the year (e.g. was born during the course of the year):

  • children under the age of 18
  • children who have been allocated a care allowance under Polish regulations, irrespective of their age
  • children under the age of 25 who are studying in recognized educational establishments
    1. This is on condition that the child did not receive any income themselves other than tax-exempt income in line with Polish tax regulations, a family disability pension, or other income small enough not to trigger a tax liability (i.e. PLN3,091).

If the parents are divorced or separated and the child spends part of the year with each parent, the deduction should be applied pro-rata to each parent based on the number of months the child reside in each spouse.

An income limitation applies to one-child families and therefore may not be available to higher earners. On the other hand slightly more generous allowances apply to families with three or more children.

Foot notes

1Certain tax authorities adopt an “economic employer” approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the “economic employer” and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

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