Simple Tax Guide for Americans in Poland
US Expat Taxes - Poland
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Poland for over 8 years. Our clients hail from all parts of the country - Warszawa and Lodz, Krakow and Wroclaw, Poznan and Gdansk.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Poland and know how to integrate your U.S. taxes into the local income taxes you pay. Any Polish income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Poland for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Polish Tax System for the American Expatriates.
Poland personal income tax is levied at progressive tax rates up to 32%.
|Tax base||Tax Rate|
|0 PLN - 85,528 PLN||18% of income minus tax-reducing amount|
|over 85,528 PLN||15,395.04 PLN + 32% of the surplus over 85,528 PLN minus tax-reducing amount|
The tax-reducing amount from the tax is calculated according to the next table:
Flat tax rates are also envisaged in case of certain incomes in a form of capital gains and lump-sum taxation is applicable to certain incomes obtained by non-residents and other privileged groups of taxpayers.
Polish resident taxpayers are subject to tax on their worldwide income, subject to double tax treaties. Non-residents are taxed only on the income derived from work performed within the territory of Poland. Personal income tax is reduced if, in the financial year, the taxpayer incurred expenditure as specified in the law, within the proper limits.
Payers of the income tax referred to in the PIT law are obliged to calculate and collect tax payments in advance, within the year, and transfer them to the bank account of the relevant tax office by the 20th of the month following the month when the tax advance payment was collected.
Taxpayers are obliged to file an annual tax return by 30 April of the following year. This obligation does not apply to taxpayers for whom the annual tax return is made by the tax collector.
The submission of the tax return has to be accompanied by payment of the difference between the income tax due, as calculated in the tax return, and the sum of any tax paid in advance.
The income tax arising from the tax return is the tax due for a given year, unless the tax office issues a decision establishing a different amount of due tax.
Individuals who receive inheritances or gifts are liable to tax for the portion they receive. Polish citizens and persons who are domiciled in Poland are also liable to this tax if the property received by them is located abroad. Gifts and inheritances of property located in Poland are exempt if neither party is a Polish citizen or domiciled in Poland. The rates are progressive depending on the category of taxpayer and value of property received and will vary from 3% to 20%.
Basis – Residents are taxed on their worldwide income. Nonresidents are taxed only on Polish-source income.
Residence – An individual is resident if his/her centre of personal or economic interest is located in Poland or if he/she stays in Poland for more than 183 days in the tax year.
Tax Filing status – Married couples may opt for joint taxation.
Taxable income – Taxable income includes most cash and non-cash benefits earned from employment, self-employment and rental income. Profits derived from economic activities are subject to rules similar to the rules applying to companies.
Capital gains – Capital gains derived from the sale of real estate within 5 years of its purchase are subject to a 19% tax (subject to certain exemptions). Gains derived from the sale of shares also are subject to the 19% rate.
Tax Deductions and tax allowances – Deductions include donations, expenses incurred by disabled persons and, in certain cases, expenses incurred on technical knowledge. Personal allowances also are available.
Other taxes on individuals:
Capital duty – No
Stamp duty – See under "Other taxes on corporations".
Capital acquisition tax – No
Real property tax – See under "Other taxes on corporations".
Inheritance/estate tax – Inheritance and gift taxes range from 3% to 20%, subject to certain allowances and exemptions.
Net wealth/net worth tax – No
Social security contributions – Employees are liable for social security contributions based on their salary, with the employer charged with collecting and remitting the amounts due (see under "Other taxes on corporations"). Selfemployed individuals are subject to specific rules. Employees also are required to make a 9% health care contribution, which is partly tax deductible.
Poland Tax year – Poland tax year is the calendar year
Tax Filing and payment of tax – Advance payments related to income tax on an employee's salary are remitted to the tax authorities by the employer on a monthly basis. Other income is generally self-assessed. Individuals are required to submit an annual tax return determining the final amount of tax due by 30 April.
Penalties – Penalties apply for noncompliance.
Poland Corporate Income Tax
Poland corporate tax rate for 2019 is 19%.
Polish resident companies are subject to corporate income tax (CIT) on all sources of their worldwide income, while non-residents are subject to corporate income tax only on income derived from the territory of Poland. A company is deemed resident in Poland if it is incorporated or managed in Poland.
In general, the tax year for corporate taxpayers is the calendar year. Taxpayers are obliged to submit their tax declaration, together with the balance sheet, to the fiscal office within three months from the end of their tax year. Taxpayers are obliged to pay tax monthly in advance, based on the current year's income.
Taxpayers can also make monthly advance payments based on specific rules if they meet certain conditions.
CAPITAL GAINS TAX
Capital gains from the disposal of fixed business assets are aggregated with income from other sources and are subject to corporate income tax at the standard corporate income tax - CIT rate.
BRANCH PROFITS TAX
The tax rate of income derived by a foreign corporation from a branch located in Poland is the same as for Polish entities (19%).
FRINGE BENEFITS TAX (FBT)
Benefits in kind are included in taxable income of employees.
Real property tax and transport tax are charged as local taxes in Poland. Real property tax is paid by owners of real estate. The tax base depends on the type of asset concerned:
- - buildings: the usable area
- - structures: value of the structure
- - land: the area
The tax rates are established by the Commune Council. The tax on the means of transport is imposed on lorries, tractors and trailers. The tax rates are also established by the Commune Council.
CIVIL LAW ACTIVITY TAX (CLAT)
Some of the civil acts may be subject to civil law activity tax. These are, in general:
- - contracts of sale, lease, hire (if not subject to VAT)
- - loan agreements
- - foundation deeds of a partnership or company
CLAT rates are from 0.1% to 2%.
Transactions subject to stamp duty include the following:
- - bills of exchange
- - public administration actions (application forms, certificates, permissions)
SOCIAL SECURITY CONTRIBUTIONS
Resident individuals and employees within the territory of Poland are subject to obligatory old age and disability insurance. Rates of social security contributions are as follows:
The employer withholds the employees' contributions. Employees' contributions are deductible for income tax purposes and employers' contributions are deductible for corporate income tax purposes.
The contribution for accident insurance is paid by the employer.
The contribution for sickness benefit is paid by the employee.
DETERMINATION OF TAXABLE INCOME
Corporate entities are subject to corporate income tax on the net profit shown on the yearly balance sheet, computed in accordance with the statutory accounting and bookkeeping rules, after adjustment for deductions and additions provided under the tax law. Generally, expenses incurred for the production of income are allowed as deductions.
Current rates range from 1.5% to 30% depending on the type of asset. As a general rule, the straight-line method must be applied although the reducing method is possible under some conditions.
The value of assets may be revalued at the beginning of the tax year with the agreement of the Minister of Finance. Land is not depreciated.
Stock in trade, or inventory, is valued at its historic cost price or market value. The cost of inventory may be calculated at a standard cost, at a weighted average cost, or on the LIFO or FIFO basis, as long as the method selected is used consistently.
CAPITAL GAINS AND LOSSES
Capital gains and losses are subject to CIT tax at a rate of 19%.
Tax exemption on dividends received by Polish resident companies from EU/EEA/Swiss subsidiaries does not apply if the amounts paid are tax deductible for the distributing company.
The taxpayer cannot benefit from the dividend distribution exemption if:
- the dividend payment results from arrangements / transactions that are primarily aimed at benefitting from the exemption and the obtaining of the exemption results in more than merely elimination of double taxation, and
- these agreements / transactions are not of a genuine nature, i.e. business justification test.
Interest is deductible on an accrual basis. For interest from credits and loans from related parties, thin capitalization applies (3:1 equity ratio)
Losses may be carried forward for five years. Up to 50 percent of the loss may be offset in each year. Loss carry back is not allowed.
As of January 1, 2019, there is a possibility of one-off utilization of a tax loss carried-forward (up to PLN 5,000,000). If the tax loss exceeds this limit, the excess of the tax loss can be settled over the remainder of the 5-year carry-forward period (but no more than 50 percent of the tax loss can be utilized in any one tax year).
As of January 1, 2018, loss is offset within each income basket (capital or business profits basket).
FOREIGN SOURCED INCOME
Resident companies are subject to tax on their worldwide income, including foreignsourced income and gains. However, double tax agreements may apply to reduce or extinguish the tax liability imposed under domestic tax law.
Polish law provides for corporate income tax incentives such as special economic zones (SEZs). In principle, companies operating within special economic zones may enjoy tax holidays which involve tax exemption from corporate income tax within certain time limits. Investments in SEZs may be conducted subject to a permit issued by the authorities. There are now 14 such zones in Poland: Mielecka, Katowicka, Suwalska, Legnicka,Walbrzyska, Lodzka, Kostrzynsko-Slubicka, Slupska, Tarnobrzeska,Warminsko-Mazurska, Starachowicka, Kamiennogorska, Pomorska and Krakowska (Krakow Technology Park).
Undertaking business activity within a SEZ requires a special permit issued by the Minister of Economy or the authorities of the SEZ. Regulations applicable to a particular SEZ may specify the minimum investment value required and/or the number of employees that must be hired to benefit from the tax exemption.
FOREIGN TAX RELIEF
Foreign-sourced income received by a resident company is included in its taxable base unless otherwise provided by the double tax treaty. Taxes paid abroad may be credited against the tax due. However, the amount of tax credit may not exceed the amount of domestic tax that would have been due on the income derived abroad had it been derived in Poland.
In accordance with the Corporate Income Tax Act, a "tax capital group" may be established. Corporate tax is due on the income of the group as a whole. Such a group can be established only by joint stock companies and limited liability companies. The parent company must own at least 95% of the equity of each of the dependent companies. There are also other conditions which must be met to establish the 'tax capital group', such as:
- - an average capital of all companies not lower than PLN 1 Million.
- - capital group agreement period - minimum 3 year
- - registration of the agreement with the tax office
- - no outstanding tax liabilies to the state budget
- - profitability ratio of the group not lower than 3% for each year
- - all of the companies included in the group must be registered in Poland
RELATED PARTY TRANSACTIONS
Transfer pricing provisions apply to transactions carried out between related parties (broadly where one partly controls the other or they are under common control). The provisions apply to both transactions between a Polish and a non-Polish resident entity and to those between Polish entities.
New withholding tax regime as of January 1, 2019
As of 2019 new WHT collection rules have been implemented in Poland: reduced DTT rates or exemption under the relevant DTT, as well as WHT exemptions under the EU Interest-Royalties Directive and EU Parent-Subsidiary regime apply as long as the aggregate qualifying payments to a given taxpayer (interest, royalties, fees for certain intangible services and dividends) do not exceed the threshold of PLN 2,000,000 annually.
However, even in such cases (payments below the threshold), the Polish payer is obliged to ensure due care in verifying whether the reduced WHT rates / exemptions may indeed be applied.
If the aggregate qualifying payments to a particular taxpayer exceed PLN 2,000,000, the Polish WHT remitter is generally obliged to collect and pay WHT at standard domestic rates (i.e. at 20 percent for other qualifying payments and 19 percent for dividends), disregarding any WHT domestic exemptions and DTT reliefs.
In such cases the foreign taxpayer may reclaim withheld taxes on the basis of a refund procedure, which could take at least 6 months (the tax authorities may decide to request additional data and prolong the procedure). The reclaim procedure may be initiated by the taxpayer (foreign entity) or by a tax remitter, but in the latter case only if the remitter has actually suffered the economic burden of tax (e.g. if the gross-up clause is used).
There are two exemptions to the abovementioned mechanism, under which it should still be possible for the Polish tax remitter to apply the preferential tax rate or exemption at source (at the moment of payment) – even though the limit of PLN 2,000,000 is exceeded, namely:
- a WHT statement is submitted to the relevant tax office by the Polish entity, or
- a WHT clearance is obtained by the foreign entity.
The WHT statement should confirm that the Polish entity holds the documents necessary to apply a preferential WHT rate or WHT exemption and that it does not know of any circumstances that would exclude the possibility of applying a reduced WHT rate or WHT exemption. The WHT remitter can only make the statement once it has verified with due care whether the foreign company is entitled to the tax benefit. The statement should be signed by all the members of the tax remitter’s management board, it cannot be signed by a proxy and it is only valid for up to two months.
The WHT clearance is a specific clearance opinion from the tax authorities confirming the application of the tax exemption to a given taxpayer (payment recipient). The WHT clearance only covers exemptions under the EU Interest-Royalties Directive and the EU Parent-Subsidiary Directive. This option is not available when applying reduced WHT rates under DTTs. WHT clearance should be issued by the tax authorities within 6 months and if issued is generally valid for 36 months.
According to the specific decree, the application of the WHT mechanism will be deferred until June 30, 2019 for most cross-border payments (with some exceptions). However, the remitters are nevertheless obliged to ensure due care in verifying the requirements for the application of the reduced rate / exemption.
The new regulations also broadened the definition of ‘beneficial owner’ contained in Polish domestic law. Under the new definition, a person / entity must cumulatively meet the following tests in order to prove beneficial owner status:
- receives income for its own benefit, including deciding how it should be used, and bears the economic risk associated with the loss of this income or part of it,
- is not an intermediary, representative, trustee or other entity legally or actually obliged to transfer all or part of the income to another entity;
- carries on genuine business activities in its state of residence, if income is obtained in connection with such business activities – here the conditions under the Controlled Foreign Company (‘CFC’) rules provided for in the Polish CIT regulations should be assessed.
It should be emphasized that the lack of due care by the Polish tax remitter may not only result in a restriction of benefits in the form of preferential taxation resulting from the CIT Act / EU Directives or DTTs, but an additional tax liability (between 10 percent -30 percent of the tax that had not been paid) may also be imposed or the fiscal-penal liability for the responsible individuals may arise.
With effect from 2003, most foreign exchange transactions are allowed by the Foreign Exchange Act and do not require a special permit from the National Bank of Poland.
Domestic persons doing business in Poland, which normally operates wholly in Zlotys, generally may hold foreign currency accounts for foreign receivables.
Invoices and services purchased abroad may be paid in foreign currencies at the official exchange rate on the day that the payment is made or from their foreign currency accounts.
Poland vat (Value Added tax) Rates
The standard VAT rate in Poland is 23%.
Polish tax law provides for 4 VAT rates. The basic rate is 23%, which is applied to majority of goods and services. 8% and 5% - applies to specific goods and services, e.g. goods related to health protection, groceries, services of hotels, folk art articles.
The rate of a special significance is a 0% rate. It is mainly applicable to export, intra-Community supply of goods and international transport services. Taxpayers enjoying 0% rate are not deprived of the right to deduct input VAT suffered upon purchases related to the activities subject to this rate.
Polish tax provisions provide also for some exemptions from VAT. Among the activities subject to such exemptions are financial, educational, health and cultural services. The exemption excludes however deduction of input VAT related to the exempt transactions.
VAT payers who have no registered seat in Poland nor fixed place of business or place of residence are obliged to appoint a fiscal representative. This obligation does not apply to EU residents.
The fiscal representative is jointly liable with the business it represents for all Polish VAT liabilities.
In general, tax obligation arises at the moment of giving, handing over, exchanging a commodity, making a gift or rendering a service. However, there are many exceptions to this rule.
Taxable transactions – VAT is imposed on: (1) the supply of goods and services; (2) the import and export of goods to/from Poland; and (3) the inter-community acquisition and supply of goods.
VAT Registration – The registration threshold of turnover for VAT purposes is PLN 50,000 per year. Nonresidents that make taxable supplies of goods or services in Poland generally must register.
Filing and VAT payment – VAT returns should be submitted and VAT due paid within 25 days following the month in which the VAT obligation arose. Other possibilities regarding filing or payment may exist (e.g. quarterly reconciliation) in certain cases.