Tax in Poland

Residents are subject to tax on their worldwide income. Non-residents are taxed on Polish-source income only.

Under domestic law, individuals whose personal or economic interests (a centre of vital interests) in Poland, or who stay in Poland for more than 183 days in a given tax year, are generally considered Polish tax residents. Individuals whose  centre of personal or economic interests is not in Poland, or who stay in Poland for a period shorter than 183 days in a given tax year are taxed in Poland only on Polish-source income.

Employment income – Taxable compensation includes salaries, bonuses and other compensation from employment exercised in Poland, regardless of whether paid in cash or in kind.

Amendments to the Personal Income Tax Act introduced an exemption from tax for employment income of young people. Under the amendments, employment income up to a maximum annual amount of PLN85,528 earned by taxpayers under 26 years old is exempt from tax.

Self-employment income - Taxable self-employment income consists of income from self-employment activities after the deduction of allowable expenses. Self-employment income is generally taxed with other income at the progressive rates.

Under certain circumstances, self-employment income may be taxed at a 19% flat rate (the difference between earnings and tax-deductible costs equals taxable income). Real estate rental income may be taxable as self-employment income or may be treated as a separate source of income.

Losses from self-employment activities may offset income only from the same source. Unused losses may be carried forward for the following five years. However, not more than 50% of the original amount carried forward may be offset against profits in each of the following five years. This is subject to a PLN5 million de minimis. This means that, where the taxpayer can deduct up to PLN5 million of the loss carried forward without restriction in the first relevant year following the year in which the loss is incurred (that is, the year in which income from the same source is realised, any excess loss can continue to be carried forward, subject to the 50% limitation rules within the five-year carry forward period. Consequently, part of the benefit of the losses carried forward may be forfeited if a taxpayer has insufficient profit from a particular income source.

Directors’ fees - In general, directors’ fees paid to residents are taxed with other income at the applicable rates. Directors’ fees paid to non-residents are subject to a final withholding tax of 20%.

Investment income - Interest income derived in Poland (except for interest derived from loans connected with business activities) and income derived from capital (investment) funds in Poland are generally taxed at a flat rate of 19%. Dividends from Poland are generally taxed at a flat rate of 19%. In general, interest on personal bank account deposits is taxed at a flat tax rate of 19%. In principle, all of these taxes are withheld at source.

Income from the rental of real estate is taxed at the progressive rates. Rental income up to PLN100,000 may also be taxed at a flat rate of 8.5%; the excess over PLN100,000 may be taxed at a flat rate of 12.5%.

Taxation of employer-provided stock options - In general, employer-provided stock options are taxed at the time of exercise on the difference between the fair market value at the date of exercise and the exercise price. This amount is generally taxed at the standard progressive tax rates. However, this amount may be exempt from tax for employees or contractors granted the right to obtain shares of a joint stock company seated in a European Union (EU) or European Economic Area (EEA) member state or in a state that has entered into a double tax treaty with Poland (the Company), based on a resolution of the shareholders’ meeting of the Company, or of the joint­ stock company dominant (according to the Polish Accounting Act) to the Company, implementing the incentive program (which is legally defined).

At the time the shares are sold, an amount equal to the sale price decreased by the exercise price and by the amount of the taxable income recognised at the time of exercise is taxed at a 19% rate.

In general, income received from the sale of real estate is taxed at a flat rate of 19%. Real estate income equals the difference between the sales price and respective expenses, which include the purchase price. However, if the sale of real estate occurs more than five years after the end of the calendar year in which the real estate was acquired or built (six months for other property, counted from the end of the month in which the property was acquired), the income from the sale is not subject to tax.

Income derived from the sale of shares is subject to tax at a rate of 19%.

In general, inheritance tax and a tax on gifts apply to assets that are located in Poland or property rights executed in Poland. In certain cases, the acquisition through inheritance or gift of immovable property and other assets located abroad is taxable if at the time of inheritance or execution of a donation contract, the acquirer is a Polish citizen or has permanent residence in Poland.

Tax rates are progressive and range from 3% to 20% for 2020, depending on the recipient’s relationship to the donor or the deceased. The recipient of the property is required to pay the tax due. Under specific conditions, the closest relatives of the donor or the deceased are exempt from inheritance and gift tax.

Beginning in 2019, a solidarity tax was imposed at a rate of 4% on individuals obtaining total income exceeding PLN1 million in a given tax year (only particular sources of income are subject to this tax, including, but not limited to, employment income and rental income). The covered taxpayers are also required to file a separate tax return (DSF­1 form).

Poland applies an exit tax at a rate of 3% or 19%. This tax applies to Polish residents planning to move their tax residency to another country. Deemed income is taxable, regardless of the fact that potential capital gains have not yet been realized as of the date of the move of residency.

Social security contributions are paid partly by the employer and partly by the employee. Contributions are levied at the following rates calculated on the employee’s gross remuneration.

* The rate depends on the employer’s type of business activity.

Contributions for retirement insurance are paid half by the employer and half by the employee. For disability insurance, the employer covers 6.5% and the employee covers 1.5%. The employee pays the entire sickness insurance contribution, and the employer pays the entire industrial injuries insurance contribution. The maximum annual base for calculating retirement and disability contributions is 30 times the projected national average monthly remuneration for that year (PLN156,810 for 2020). Directors’ fees payable to board members and commercial proxies based on a specific resolution are not subject to social security and health care contributions.

Contributions to the healthcare system are levied at a rate of 9% on the employee’s assessment base, which is gross remuneration after deduction of the employee’s contributions to retirement, disability and sickness insurance. In general, health care contributions are partially (7.75% of the healthcare base) deductible for personal income tax purposes.

Income tax may be generally withheld directly by employers on behalf of employees and remitted to the tax office within 20 days after the end of the month in which the income is paid or made available to the employee.

Self-employed individuals and expatriates on temporary assignments to Poland who are paid from abroad must generally make advance tax payments each month, and must file annual tax reconciliations stating their income received and the advance tax paid by 30 April of the following year.