Income Tax in Poland
Personal Income Tax:
The tax return is due on 30th April and calendar year is tax year. 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.
Polish tax residents pay Polish personal income tax (PIT) on their worldwide income. Non-residents are subject to Polish PIT on their Polish-sourced income only.
Personal income tax rates:
General PIT rules provide for the rates shown in the following table:
Annual taxable income (PLN)
Tax on column 1 (PLN)
Tax on excess
18% of the base less the amount decreasing tax**
** The amount decreasing tax varies from PLN 1,180 to PLN 0.01 and needs to be calculated individually based on taxable income (see Personal allowances in the Other tax credits and incentives section).
In many cases, non-residents can benefit from a 20% flat tax rate calculated on their revenues (i.e. with no deduction of costs). The flat tax applies to various sources of income, including management fees (but not to employment contracts). The above general rules, resulting from the Polish domestic legislation, may be modified by the applicable double tax treaties (DTTs).
Individuals running business activities (as sole traders or as partners in partnerships) can opt for a flat 19% income tax rate, subject to certain conditions.
PIT is levied on an individual’s overall income. The taxable base is calculated as the sum of income generated from all taxable sources, subject to a number of exceptions (i.e. some sources are taxed separately and left outside the overall income calculation).
Income from a particular source is defined as the surplus of revenue from such source over the tax-deductible costs related to the same source. If within one source of income tax-deductible costs exceed revenue, the result is a tax loss (see Losses in the Deductions section for more information).
Employee revenue includes basic pay, overtime pay, supplemental pay, awards and bonuses, compensation for unused holiday or vacation time, and all other monetary amounts and benefits in kind, as well as all other services obtained for free, from the employer.
Transfer of real property:
Transfer of real property, if made within the scope of regular business activity, is taxed on general rules. Consequently, it is added to other business income and taxed based on the progressive scale or the 19% flat rate.
However, special rules apply if the transfer of property is made outside the scope of business activity. These rules vary according to the date on which real property had been acquired.
Generally, sale of real property shall not be taxed if the sale is made after the lapse of five years after the end of the tax year when the property in question was purchased (i.e. property acquired in 2011 or earlier can be sold free of tax in 2017).
If the above exemption is not applicable, real property disposal is taxed at a 19% rate calculated on income. The income equals the difference between the revenue on sale and the cost of earning that revenue, increased by the overall amount of depreciation allowances (if any) made on the property in question before the disposal. Revenues earned from the disposal of residential real estate can be exempt from taxation in some cases.
Transfer of shares:
Transfer of shares is taxed at a separate 19% rate calculated on income (revenue less expenses on acquisition). The income is not added to income from other sources.
Dividend and interest income:
Income from dividends paid by joint-stock companies and limited liability companies is not added to individual’s overall income. Instead, it is subject to 19% tax calculated on revenue (deductions are not available). The same rules apply to interest on loans and savings.
An exception concerns loans granted within the scope of regular business activities. If this is the case, the general PIT rules apply. Consequently, both the revenues and the costs associated with such loans are taken into account while calculating the taxable base. Subsequently, income from business activity is taxed according to the progressive scale or the 19% flat rate.
More than 130 types of income are tax exempt. The most important are the following:
· Damages received on the basis of administrative law, civil law, and other legal acts (subject to numerous exceptions).
· Receipts from property insurance and personal insurance claims (subject to some exceptions).
· Remuneration paid to individual businessmen out of the international aid funds established by foreign financial institutions or other countries based on agreements concluded between such institutions or countries and the Polish government.
· Cash equivalents provided to employees when they need to use their own tools, goods, and equipment to perform work.
· Reimbursement of an employee’s costs for relocation to another place of employment and reimbursement for the costs of settling in the new place (up to 200% of the monthly salary due to the employee in the month of transfer).
· Limited daily allowances and other amounts due to employees for the duration of business trips.
· Additional pay granted to employees temporarily transferred to work away from home and other benefits granted according to the principles and limits outlined in the rules for state employees.
· Value of accommodation rented by employer for employees (up to certain limit).
· Limited payments to employees who use their private cars for company business.
Special rules for non-residents:
Specified types of income, if gained by non-residents, are subject to special treatment. Namely, they are taxed at a flat rate of 20% calculated on revenue (cost deductions are not allowed) unless a DTT between Poland and the individual’s country of residence provides otherwise. These types of earnings include the following:
· Revenue from copyrights and other intellectual property (IP), such as trademarks, patents, and designs (including revenue from sale of the rights in question).
· Income from transfer of technology and know-how.
· Remuneration for leasing industrial, commercial, or scientific equipment.
· Income from independent work in the fields of art, literature, science, education, journalism, and sport (including income from participation in artistic, scientific, and cultural competitions).
· Income from work commissioned by national or local authorities or administrative bodies, courts, prosecutors.
· Income received as fees for membership in boards of directors, supervisory boards, committees, and other decision-making bodies of legal entities.
· Income from rendering personal services based on the agreement with a legal person or other entity as long as these services are not rendered within the scope of independent business activity (i.e. they are not offered to the public).
· Income received from activities performed personally under management or similar contracts.
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.
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.
Corporate Income Tax:
Corporate income tax. Resident companies (including companies in the process of incorporating or registering) are subject to corporate tax on their worldwide income and capital gains. Nonresident companies are taxed only on income earned in Poland. Effective from 1 January 2017, for corporate income tax purposes, Polish-source income includes income (revenue) from, among others, the following:
· Activities conducted in Poland, including activities of foreign permanent establishments located in Poland
· Real estate located in Poland or rights resulting from such real estate (including sales of real estate or related rights)
· Transfers of shares (stocks), participation rights in partnership profits and investment fund certificates, if real estate located in Poland, directly or indirectly, accounts for at least 50% of the total value of the assets
· Securities and derivatives listed on a stock exchange in Poland, including income (revenue) from the sales or execution of resulting rights
· Receivables held by Polish taxpayers, regardless of the place where the agreement was concluded or where the agreed action was performed
A company is resident in Poland for tax purposes if it is incorporated in Poland or managed in Poland. For this purpose, the concept of management is broadly equivalent to the effective management test in many treaties and is typically deemed to be exercised where the board of directors (or equivalent) meets. A branch of a nonresident company is generally taxed according to the same rules as a Polish company. Partnerships (in Poland, they include civil law partnerships, limited partnerships and general partnerships) are tax transparent except for foreign partnerships that are treated in their countries as taxpayers subject to corporate income tax. Under an amending law passed in 2013, Polish limited joint-stock partnerships are treated as corporate income tax taxpayers. The new law entered into force on 1 January 2014 (or some later date for certain partnerships with a non-calendar accounting year).
Under most tax treaties, income from an overseas representative office or permanent establishment of a Polish resident company is exempt from tax. Alternatively, certain tax treaties grant a tax credit for the foreign tax imposed on foreign-source income.
The general corporate income tax rate is 19%. In the limited cases mentioned below, the rate is 15%.
Effective from 1 January 2017, a corporate income tax rate of 15% may apply to the following taxpayers:
· Start-up taxpayer (the 15% rate applies in the tax year in which the taxpayer begins its operations, subject to the conditions mentioned below)
· Taxpayer whose revenue from sales (including VAT due) in the preceding tax year did not exceed the zloty (PLN) equivalent of EUR1,200,000 (small taxpayer)
The 15% corporate income tax rate does not apply to start-up taxpayers that were created as a result of certain restructuring activities including, among others, mergers, spin-offs (demergers), transformations (except transformations that do not change the status for corporate income tax purposes; that is, both prior and after the transformation the entity remains a corporate income tax taxpayer) and contributions in-kind (including contributions of an organized part of an enterprise; that is, a going concern). In such a case, a reduced 15% corporate income tax rate might not be applied for the first and second tax year after the restructuring event takes place.
Capital gains, including those derived from the sale of publicly traded shares and state bonds, are treated as part of a company’s profits and are taxed at the regular corporate tax rate. Capital losses are deductible from normal business income.
In general, capital gains are calculated by subtracting the cost of the asset (or its net value for tax purposes) and sales expenses from the sales proceeds. If the sales price differs substantially from market value, the tax office may apply an independent expert valuation.
Capital gains derived by nonresidents from sales and other disposals of state bonds issued on foreign markets may be effectively exempt from tax in Poland under domestic regulations if certain conditions are satisfied.
The Polish tax year must last 12 consecutive months, and it is usually the calendar year. However, a company can choose a different period of 12 consecutive months as its tax year by notifying the relevant tax office by certain deadlines. The first tax year after a change must extend for at least 12 months, but no longer than 23 months. If a company incorporated in the first half of a calendar year chooses the calendar year as its tax year, its first tax year is shorter than 12 months. A company incorporated in the second half of a calendar year may elect a period of up to 18 months for its first tax year (that is, a period covering the second half of the year of incorporation and the subsequent year). In the event of a liquidation, a merger or division of a company, the tax year may be shorter than 12 months.
In general, companies must pay monthly advances based on preliminary income statements. Monthly declarations do not need to be filed. In certain circumstances, a company may benefit from a simplified advance tax payment procedure.
Companies must file an annual income tax return within three months after the end of the company’s tax year. They must pay any balance of tax due at that time.
An overpayment declared in an annual tax return is refunded within three months. However, before the overpayment is refunded, it is credited against any past and current tax liability of the company. If the company has no tax liability, it may request that the tax office credit the overpayment against future tax liabilities or refund the overpayment in cash. Overpayments earn interest at the same rate that is charged on late payments. Under the tax code, the rate of penalty interest on unpaid taxes varies according to the fluctuation of the Lombard credit rate. The interest rate on tax arrears is 200% of the Lombard credit rate, plus 2%. It cannot be lower than 8%. The penalty interest rate was 8% on 29 December 2016.
A 19% withholding tax is imposed on dividends and other profit distributions paid to residents and nonresidents. Resident recipients do not aggregate domestic dividends received with their taxable income subject to the regular rate. For nonresident recipients, the withholding tax is considered a final tax and, accordingly, the recipient is not subject to any further tax on the dividend received. A treaty may reduce the tax rate for distributions to nonresidents if the recipient who is the beneficial owner of the dividend provides the required certificate indicating that the recipient’s tax residence is located in the other treaty country.
Polish companies (and joint-stock partnerships, effective from 1 January 2014), other European Economic Area (EEA; the EEA consists of the European Union [EU] countries and Iceland, Liechtenstein and Norway) companies and Swiss companies are exempt from tax on dividends and other profit distributions received from Polish subsidiaries if they satisfy all of the following conditions:
· They are subject to income tax in Poland, an EU/EEA member state or Switzerland on their total income, regardless of the source of the income (the exemption applies also to dividends or other profit distributions paid to permanent establishments, located in EU/EEA member states or in Switzerland, of such companies).
· They do not benefit from income tax exemption on their total income (which should be documented with their written statement).
· For at least two years, they hold directly at least 10% (25% for Swiss recipients) of the capital of the company paying the dividend. The two-year holding period can be met after payment is made. If the two-year holding period is eventually not met (for example, the shareholder disposes of the shares before the two-year holding requirement is met), the shareholder must pay the withholding tax and penalty interest. Broadly, except for some specific cases, full ownership of the shares is required.
· The Polish payer documents the tax residency of the recipient with a certificate of residency issued by the competent foreign tax authorities (if payments are received by a permanent establishment, some other documents may be needed).
· A legal basis exists for a tax authority to request information from the tax administration of the country where the taxpayer is established, under a double tax treaty or other ratified international treaty to which Poland is a party.
· The dividend payer is provided with a written statement confirming that the recipient of the dividend does not benefit from exemption from income tax on its worldwide income, regardless of the source from which such income is derived.
The above exemption does not apply to revenues earned by a general partner from its share in the profits of a limited joint-stock partnership.
The tax exemption for inbound dividends and the exemption from withholding tax on outbound dividends do not apply if the dividends are connected with an agreement, other legal action or a series of related actions and if the main purpose or one of the main purposes is to benefit from these tax exemptions (see Section E).
Specific rules exist regarding the corporate income taxation of the general partner of a limited joint-stock partnership. In general, such partner is subject to regular withholding tax on dividends in Poland. However, the amount of withholding tax on revenue earned by a general partner in a limited joint-stock partnership is reduced by the amount calculated by multiplying the percentage of the share in profits attributable to the general partner and the amount of the tax due on the total income of the limited joint-stock partnership.
The income (revenue) allocated to a Polish branch is subject to regular taxation in Poland. Withholding tax is not imposed on transfers of profits from such branch to its head office because from a legal perspective, a branch is regarded as an organizational unit of the foreign enterprise.
Interest, royalties and service fees:
Under the domestic tax law in Poland, a 20% withholding tax is imposed on interest, royalties and fees for certain services paid to nonresidents. This withholding tax may be eliminated or reduced if the following conditions are satisfied:
The payer can document the tax residency of the recipient (beneficial owner) of the payment or the service provider with a certificate indicating that the recipient or service provider’s tax residence is in a country that has concluded a double tax treaty with Poland.
The relevant treaty allocates taxing rights to the country of the service provider or recipient, or provides a different rate.
Under most of Poland’s tax treaties, the withholding tax on fees for services may not be imposed in Poland.
Poland was granted a transitional period for the implementation of the EU Interest and Royalties Directive (2003/49/EC). Under the transitional rules, Poland was required to incorporate the directive provisions into its domestic law, but it was entitled to impose withholding tax at reduced rates until 30 June 2013. Effective from 1 July 2013, the full exemption applies to interest and royalties paid to qualifying entities if the following conditions are met:
· The payer is a company that is a Polish corporate income taxpayer (the exemption does not apply to joint-stock partnerships) with a place of management or registered office in Poland (the exemption applies also to payments made by permanent establishments located in Poland of entities subject to income tax in the EU on their total income, regardless of the source of the income, provided that such payments qualify as tax-deductible costs in computing the taxable income subject to tax in Poland).
· The entity earning the income is a recipient of such income and is a company subject to income tax in an EU/EEA member state (other than Poland) on its total income, regardless of the source of the income (the exemption applies also to payments made to permanent establishments of such companies if the income earned as a result of such a payment is subject to income tax in the EU member state in which the permanent establishment is located). In addition, the company must not benefit from income tax exemption on its total income.
· For at least two years, the recipient of the payments holds directly at least 25% of the share capital of the payer or the payer holds directly at least 25% of the share capital of the recipient of the payments. This condition is also met if the same entity holds directly at least 25% of both the share capital of the payer and the share capital of the recipient of the payments and such entity is subject to income tax in an EU/EEA member state on its total income, regardless of the source of the income. The two-year holding period can be met after payment is made. If the two-year holding period is eventually not met (for example, the shareholder disposes of the shares before the two-year holding requirement is met), the shareholder must pay the withholding tax together with the penalty interest. Full ownership of the shares is required.
· The Polish payer documents the tax residency of the recipients of the payments with a certificate of tax residency issued by the competent foreign tax authorities (if payments are received by a permanent establishment, some other documents may be needed).
· A legal basis exists for a tax authority to request information from the tax administration of the country where the taxpayer is established, under a double tax treaty or other ratified international treaty to which Poland is a party.
· The recipient of the payments provides a written statement confirming that it does not benefit from exemption from income tax on its total income, regardless of the source of the income, and that it is the “beneficial owner” (see below) of the payments received.
As of 1 January 2017, the definition of “beneficial owner” was introduced in the Polish Corporate Income Tax Act. Under the act, a “beneficial owner” is an entity receiving income for its own benefit, and is not an intermediary, agent, trustee or another entity obliged to pass on all or part of the income to another entity.
Certain types of income are excluded from the exemption.
Foreign tax relief:
Under its tax treaties, Poland exempts foreign-source income from tax or grants a tax credit (usually with respect to dividends, interest and royalties). Broadly, foreign taxes are creditable against Polish tax only up to the amount of Polish tax attributable to the foreign income.
In addition to a credit for tax on dividends (that is, a deduction of withholding tax; direct tax credit), Polish companies (or Polish permanent establishments of EU/EEA resident companies) may also claim a credit for the tax on profits generated by their subsidiaries in other treaty countries (indirect tax credit). A Polish company receiving a dividend from a subsidiary that is not resident in the EU, EEA or Switzerland may deduct from its tax the amount of income tax paid by the subsidiary on that part of the profit from which the dividend was paid if the Polish parent company has held directly at least 75% of the foreign subsidiary’s shares for an uninterrupted period of at least 2 years. The total deduction is limited to the amount of Polish tax attributable to the foreign income.
Foreign-source dividends are added to other profits of a Polish taxpayer taxed at the standard 19% rate.
Dividends from companies resident in EU/EEA states or in Switzerland may be exempt in Poland if the Polish recipient holds directly at least 10% (25% in the case of Switzerland) of the share capital of the foreign subsidiary for an uninterrupted period of at least 2 years. The shareholding period requirement does not have to be met as of the payment date. The exemption does not apply if the dividends (or dividend-like income) are deductible for tax purposes in any form.
The tax exemption for inbound dividends does not apply if the dividends are connected with an agreement or other legal action or a series of related actions and if the main purpose or one of the main purposes is to benefit from this exemption (see Section E).
The above exemption also does not apply if income from the participation, including redemption proceeds, is received as a result of the liquidation of the legal entity making the payments.
The domestic exemption or tax credit can be applied if a legal basis exists for a tax authority to request information from the tax administration of the country from which the income was derived, under a double tax treaty or other ratified international treaty to which Poland is a party.
Broadly, except for some specific cases, full ownership of the shares is required to claim the credits and exemptions discussed above.
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.