Income taxes in Poland
Corporate income tax
1. Legal basis: Act on corporate income tax.
2. Income tax rate – 19%.
3. Taxable income
Taxpayers resident in Poland are taxed on their worldwide income regardless of where it is earned. Receivables are generally treated as income when they become due; cash accounting scheme applies to interest.
As a rule, expenses incurred in order to generate income (taxable), to retain or protect sources of income are deductible as tax deductible costs, unless they are specifically excluded in the Act.
Non-deductible expenses include:
– expenses incurred in purchasing land or perpetual usufruct rights to land, except for periodical payments for perpetual usufruct;
– expenses incurred in purchasing and producing fixed assets and intangibles; however, such expenses are depreciated
– motor vehicle depreciation allowances and insurance premiums in respect of that part of the value of the vehicle which exceeds the equivalent of EUR 20,000;
– interest on accrued but unpaid liabilities; interest on the taxpayer’s own capital invested in the source of income;
– fines and fiscal penalties;
– expenses related to tax-free income;
– representation expenses.
Losses may be carried forward for 5 years; up to 50% of the loss may be deducted each year.
Examples of basic depreciation allowances:
Buildings and constructions – 1.5-4.5%
Machines and equipment – 7-20%
Computers – 30%
Vehicles, Mobile phones, Cash registers – 20%
In general the straight-line method applies, but the declining-balance method can be used as well under certain conditions.
7. Tax year
The tax year for companies is, in general, the calendar year. A company can also choose the period of 12 consecutive months. If a Company starts up its activities in the second half of the year there is a possibility to extend its tax year until the end of the next tax year.
8. Tax returns
The tax return must be filed by the end of the third month of the following tax year.
9. Advance payments of tax
Advance payments must be paid by the 20th day of the following month.
A taxpayer under certain condition can apply a simplified form for payment of advance tax payments in a given tax year.
10. Taxation of non-resident companies
Non-resident taxpayers are subject to tax on their Polish source income and capital gains (including gains on shares in Polish companies). The taxable income of non-residents is calculated under the rules applying to resident companies.
The provisions of Corporate Income Tax (CIT) Act shall also apply to foreign entities having no legal personality under condition that they are treated as corporate income tax payers in their home country.
All foreign entities conducting economic activity in Poland must keep accounting records.
In Poland, there is a 19% withholding tax on dividends, unless a preferential rate under the agreement on avoidance of double taxation or a EU Directive applies; under certain conditions an entity can also be exempt from any withholding tax,
– interest, royalties
Interest/royalties paid to non-resident companies by Polish resident are also taxed on the gross income at a rate of 20%; the tax rate can be reduced under specific conditions,
– consulting and other similar services
There is 20% tax on income derived from advisory services, accounting, advertising, data processing, market research, recruiting, and management and control services. However, agreements on avoidance of double taxation generally stipulate that provision of such services is exempt from withholding tax.
– agreements on avoidance of double taxation
Poland concluded agreements on avoidance of double taxation with almost 100 countries.
The current list can be found at: http://www.finanse.mf.gov.pl/abc-podatkow/umowy-miedzynarodowe/wykaz-umow-o-unikaniu-podwojnego-opodatkowania.
11. Transfer pricing
In case of related entities (the same persons performing management, supervision, or controlling in both entities, family links, shareholders assuming minimum 5% holding), Polish tax payers are obliged to prepare transfer pricing documentation.
When the transfer pricing documentation is not presented within 7 days time from the date of a request of tax authorities, any possible difference between taxpayers records and calculation made by tax authorities can be taxed at a 50% rate.
If the prices between the related entities do not satisfy the arm?s length principle the tax authorities can adjust the prices using primarily three methods: the comparable uncontrolled price, the resale price or the cost-plus method.
12. Tax rulings
On the basis of a written application of a tax payer, tax authorities are obliged to issue a written interpretation regarding the applicability of the tax laws in a particular case.
Personal income tax
1 Legal basis: Act on personal income tax.
2. Polish taxpayer’s status
An individual is considered to be a resident for income tax purposes if his place of living is in Poland. An individual with place of living in Poland is a person who:
– is physically present in the Republic of Poland for more than 183 days during a tax year;
– has a centre of personal interests in the Republic of Poland.
Tax is generally levied on the aggregate income from all categories, for instance: income from employment or pension and independent income, income from business, rental income and investment income.
Income tax is levied on the aggregate taxable income under the following table:
Tax base in PLN
below 85 528 – 18 per cent of the tax base less 556,02
over 85 528 – 14 839,02 plus 32 percent of surplus over 85 528
4. Business activity
In general, business income is aggregated with income from other categories and taxed at the progressive rates (see table above). However, the 19% flat-rate may be applied. In that case, taxpayers are not entitled to any personal deductions and credits, except credits for the obligatory health insurance contributions. Moreover, they are not entitled to file a joint tax return with their spouse.
Partnerships are not taxable entities as such (except for partnerships limited by shares from 1 January 2014), therefore partners are taxed individually on their share of profits.
5. Investment income
Dividends, interest, income from participation in investment funds, and capital gains from the sale of shares and other securities, provided they are not arising in the course of a business, are taxed separately at a 19% flat rate.
6. Taxes on income and capital gains – non-resident taxpayers
Non-resident taxpayers are subject to tax only on Polish source of income and capital gains (including gains on shares in Polish companies).
The following income of non-residents is subject to withholding tax:
– dividends – 19%;
– interest – 20%;
– royalties – 20%;
– directors- remuneration – 20%;
– income derived from provision of advisory services, accounting, advertising, data processing, market research, recruiting and management control services – 20%.
All rates should be applied with the consideration for the relevant double-tax agreement.
7. Tax year and tax returns
The tax year for individual taxpayers is the calendar year.
The annual tax return must be filed by 30 April of the year following the tax year.
8. Advance payments of tax
Income tax must be paid in advance every month and adjusted at the end of the tax year.
Small taxpayers earning business income may, however, pay quarterly advance payments if their annual turnover, including VAT, is lower than EUR 1.2 million.