Introduction
In Poland, the Personal Income Tax (PIT) system plays a very important role in the country’s fiscal framework. Understanding its aspects is essential for individuals and businesses alike to ensure compliance and manage their financial obligations effectively. This article aims to provide a practical guide to PIT in Poland, covering its fundamentals, key regulations, recent developments, and practical implications.
Fundamentals of PIT
Personal Income Tax (PIT) in Poland is governed by the Personal Income Tax Act, which outlines the tax rates, exemptions, deductions, and other relevant provisions. PIT is levied on various sources of income, including employment income, business profits, capital gains, and property income.
Taxpayers in Poland are categorized into two main income tax scales:
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12% tax rate: Applicable to individuals earning up to PLN 120.000 annually (as of the tax year 2023). |
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32% tax rate: Imposed on income exceeding PLN 120.000 annually. |
There are also several different PIT rates for various types of income, e.g. 10% on prizes or 19% for entrepreneurs taxed on a straight-line basis or for the sale of real estate.
Moreover, individuals may benefit from various tax deductions and allowances, including Internet connection deduction, thermo-modernization relief, child relief or rehabilitation expenses deduction.
Who is the Subject of PIT?
Individuals, if they reside in the territory of the Republic of Poland, are subject to tax liability on all their income (revenues), regardless of the location of the sources of income (unlimited tax liability).
Who is Considered to be a Person Residing in the Territory of the Republic of Poland?
An individual who:
Has a center of personal or economic interests (center of vital interests) in the territory of the Republic of Poland
Stays in the territory of the Republic of Poland for more than 183 days in a tax year.
Individuals who do not have their place of residence in the territory of the Republic of Poland, are subject to tax liability only on income (revenues) obtained in the territory of the Republic of Poland (limited tax liability).
Which Income is Considered to be Earned in the Territory of the Republic of Poland?
Income from:
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Work performed in the territory of the Republic of Poland based on a service relationship, employment relationship, homework relationship, and cooperative employment relationship, regardless of the place of payment of remuneration
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Activities performed personally in the territory of the Republic of Poland, regardless of the place of payment of remuneration
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Business activity conducted in the territory of the Republic of Poland, including through a foreign establishment located in the territory of the Republic of Poland
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Real estate located in the territory of the Republic of Poland or rights to such real estate, including its disposal in whole or in part or disposal of any rights to such real estate
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Securities and derivative financial instruments other than securities admitted to public trading in the territory of the Republic of Poland on a regulated stock exchange market, including those obtained from the sale of these securities or instruments and from the exercise of rights arising from them
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Redemption and otherwise annihilation of participation titles in capital funds established on the basis of the provisions in force in the Republic of Poland and sale of these participation titles for a fee
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Title to the transfer of ownership of shares in a company, all rights and obligations in a company that is not a legal person or titles of participation in an investment fund, mutual investment institution, or other legal person and rights of a similar nature or in respect of receivables resulting from the possession of these shares (shares), all rights and obligations, participation titles or rights – if at least 50% of the value of the assets of this company, company that is not a legal person, this investment fund, this mutual investment institution or legal person, directly or indirectly, constitute real estate located in the territory of the Republic of Poland Poland or rights to such real estate
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Title to the transfer of ownership of shares (shares), all rights and obligations, participation titles, or rights of a similar nature in a real estate company
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Regulated receivables, including those made available, paid, or withheld, by natural persons, legal persons, or organizational units without legal personality, having their place of residence, registered office, or management in the territory of the Republic of Poland, regardless of the place of conclusion of the contract and performance of the service
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Unrealized profits.
Double Taxation and How to Avoid It
The problem of double taxation concerns Polish tax residents who earn income in Poland and abroad simultaneously. They are obliged to pay tax on their income in accordance with their unlimited tax liability, i.e. pay taxes in Poland.
These taxpayers are subject to one more rule: the principle of source taxation, according to which they must also pay income tax abroad. It is this situation that gives rise to double taxation – if left this way, the taxpayer would pay two income taxes and would have little left of the money earned.
If two countries between which a double taxation avoidance agreement is concluded recognize the taxpayer as their resident and thus impose unlimited tax liability on him, the so-called collision rules.
These are provisions in the contract that help determine which country a given person is a tax resident of (you cannot be a tax resident in two countries at the same time). In most cases, the center of life’s interests is considered more important.
The full list of countries with which Poland has signed a double taxation agreement can be found on the Polish Ministry of Finance website.
Double taxation of income is prevented by methods of avoiding double taxation. When analyzing the content of double taxation avoidance agreements concluded by Poland with other countries and the acts, two methods can be distinguished:
Exclusion method with progression
Proportional deduction method.
Which of the above methods applies in a given case is determined by the relevant double taxation agreement and national tax regulations.
Tax Exemptions
The regulations name specific incomes that are not the subject of taxation, including:
Family type income (e.g. child support, family benefits, maternity benefits)
Additional income for employees
Compensations
Capital income and property rights
Income of pupils and students
Prizes and winnings.
Tax-Deductible Costs
Tax-deductible costs are expenses incurred to obtain income (e.g. commuting to work).
Income reduced by the costs of obtaining it contributes to paying less income tax to the tax office.
The final value of PIT to be paid can be illustrated by the following formula:
Income = Revenue – Costs of Obtaining Revenue |
Ensuring that the value of tax-deductible costs is as close as possible to the amount of income is essential.
PIT Reporting
PIT reports should be submitted by 30th of April.
At the beginning of the year, the employer provides employees with a PIT form.
Do the employees have to settle the PIT report by themselves? The answer is – yes.
Settling the PIT report is the taxpayer’s responsibility. PIT settlement means completing and then submitting the appropriate PIT declaration to the appropriate tax office.
The document should show (based on data provided by the employer):
Revenues
Costs
Income
Paid ZUS contributions
Tax reliefs
Exemptions.
Next, the taxpayer should calculate the tax amount and compare it with the advance payments withheld by the employer. In case of overpayment, the taxpayer can expect a refund. If the tax office received an insufficient amount during the year, a transfer must be made to the appropriate account number.
You can submit the tax report on paper, sending it via post office or you can submit a digital report via the government website
Conclusion
Understanding the Polish Personal Income Tax system is crucial for individuals getting to know their tax obligations in Poland. Whether you’re a resident or a non-resident taxpayer, knowing the key concepts of PIT, such as taxable income, deductions, and rates, is essential for compliance and minimizing tax liabilities.
Adwisen offers you qualified and helpful assistance throughout the whole process
