TAXES IN POLAND
Basic knowledge of taxes is essential to anyone, including foreigners, who should be aware of the consequences that can cause retention with tax in Poland. Apart from the tax-penal responsibility, which threatens to non-compliance with tax law in Poland, foreigners should know and remember that the arrears with payment of taxes, as long as there was no relief from the payment of arrears, defer or spread their installment, leads to a refusal of granting them the right to stay in Poland.
Polish tax system can be divided into 12 types of taxes, which are further divided into direct and indirect. The first group includes 9 types:
• corporate income tax (CIT)
• personal income tax (PIT)
• tax on civil law transactions,
• property tax,
• tax on means of transport,
• inheritance tax,
• agricultural tax,
• forest tax and the tax on the ownership of dogs.
Indirect taxes include the value-added tax (VAT), excise tax and tax on games.
In this paper we present the description of the major types of taxes. For more information about the taxes you will find on the website of the Ministry of Finance, also available in English: http://www.finanse.mf.gov.pl
I. PERSONAL INCOME TAX
“The personal income tax can be paid in one of the following ways of taxation:
• by lump sum – applying only to limited income sources,
• by general terms (progressive tax scale) – applying to most of the income sources, particularly to income received from employment (employment relationships).
Natural persons running non-agricultural economic activity are also taxed in accordance with progressive tax scale. If a taxpayer chooses this way of taxation income from such activity is taxed by the 19% tax rate. Taxpayers may also choose one of the following ways of lump sum taxation: lump sum on registered income, tax card.
Some natural persons can entertain the possibility of paying lump sum of the income tax in accordance with the Act on Lump Sum Taxation of Some Revenues Raised by Natural Persons of 20th November 1998.The lump sum payment may also be chosen by taxpayers performing non -agricultural economic activity to a limited extent: in the form of a lump sum tax on registered income or so called "tax card."
The lump sum on registered income applies both to income of certain categories of non-agricultural economic activity of natural persons even if the activity is run in a form of:
• natural persons' civil law partnership
• natural persons' general partnership.
This kind of taxation is possible for taxpayers if they start running economic activity and choose this method of settlement. If the taxpayers had already run such activity in the previous year the lump sum taxation is still achievable for them provided that their revenue from that year does not exceed 150.000 EUR.
Moreover, by lump sum on registered income, can be taxed natural persons gaining incomes from lease, sub-lease, tenancy and sub-tenancy agreements and from similar agreements with the exception of such agreements concluded as a part of one's business activity.
The income taxed in the form of a lump sum cannot be linked with income from other sources.
The lump sum tax rates on registered revenue could be for example:
• 20 % for revenue from freelance professions,
• 8,5 % for revenue from services, incl. catering connected with the sale of beverages containing over 1.5 % alcohol,
• 5,5 % for revenue from production and construction works,
• 3,0 % for catering services, with the exception of revenue from the sale of beverages containing over 1.5 % of alcohol.
The lump sum on registered income cannot be applied to taxpayers receiving their entire or part of the revenue e.g. from running pharmacies, from trading of foreign currencies and from trading of parts and additional accessories of motor vehicles.
Natural persons who are taxed by lump sum on registered income have the duty of keeping records of revenues and also fixed assets register and equipment register.
Tax card is the simplest way of taxation because taxpayers who choose it do not have to keep books of account, and are also exempted from the duties of:
• submitting tax returns,
• paying advances towards personal income tax.
Tax card taxation can be applied to taxpayers who do not run their economic activity outside the territory of Poland on their application (in a form of PIT-16 tax return) addressed to the head of a local tax office who decides if taxpayers qualify for the taxation.
Such decision is issued annually by the head of a tax office and also assesses the exact tax value.
The tax rates are expressed in the amount of money to be paid (not in %) and are increased every year.
However, the exact tax rate depends on:
• the form and scope of a taxpayers economic activity,
• the number of employees,
• the number of inhabitants of the place where the taxpayer's economic activity is performed.
Taxpayers are supposed to pay this tax monthly to the 7th day of every month for the previous month (and for December to 28th of the month) in the amount resulting from decision of the head of local tax office. The due tax is reduced by the amount of health insurance contribution paid by taxpayer.
General terms of taxation (PIT)
The taxation of the income of natural persons is generally regulated by the Act on Personal Income Tax of July 26th, 1991. Since then the act has been repeatedly amended.
Subject of the income tax
Income tax is a personal tax. It means the taxpayer is every natural person who gains income. This rule also complies with married couples unless they apply for joint tax return of their incomes. Natural persons living in Poland (residents) are taxed in accordance with the following rule: unlimited tax liability. It means, that according to Polish regulations, those people pay the income tax on their total gained incomes (revenue), no matter where the sources of revenue are located - in the country or abroad. There are some exceptions to this rule. Any income obtained from abroad is excluded from the income taxation in Poland when an international agreement of which Poland is a party, constitutes so.”
II. REAL ESTATE TAX
A person being in possession of a ground or building is subjected to real estate tax, paid annually. Tax rates are determined by the authorities of the municipalities, but they cannot exceed a fixed limit set by the Minister of Finance.
III. CORPORATE INCOME TAX
“Corporate income tax is regulated by the Act on Corporate Income Tax of February 15th, 1992 . The Act has been repeatedly amended so far.
Subject of the taxation
Taxpayers of the corporate income tax are as follows:
• Legal persons;
• Capital companies in organization;
• Organization units without legal personality with an exception of companies without legal personality;
• Companies without legal personality but which have registered office or board in another country if according to regulations of the tax law of that country they are treated like legal persons and liable to taxes in that country on worldwide income;
• Tax capital groups.
Amongst the legal persons exempt from CIT are among others:
• State Treasure,
• Budgetary units,
• Investment funds with the seat in EEA countries, which meet conditions provided in the Act,
• Pension funds with the seat in EEA countries, which meet conditions provided in the Act,
• The National Bank of Poland.
The subject of the corporate income tax
The subject of the corporate income tax is the income regardless the kind of revenue sources. The income is an excess of the revenues over the tax deductible costs occurred in the tax year. If the tax deductible costs are higher than the revenues, the difference is a loss. When a taxpayer bears the loss in the tax year, he/she can reduce the income by the amount of this loss in the following five tax years. However, the amount of the reduction in any of these years must not be higher than 50% of the loss amount.
Limitations in deductions
The tax deductible costs are, with some exceptions, all costs bore in order to obtain revenue or to maintain or protect the revenue source.
In accordance with the Act some kinds of income are tax exempt.. For example, for taxpayers such as associations, societies, foundations that realise socially useful aims stated by the law., income is exempt from the tax if it is allocated for the statutory activity of these entities.
The rate of tax is 19% of tax base.
Tax returns and collection of the corporate income tax
Taxpayers and tax remitters do not submit tax returns during the tax year but they are obliged to pay the tax advances.
During a tax year taxpayers may also calculate the tax advances applying simplified method. In this method, payment of advances depends on due tax indicated in the tax return submitted in the year preceding the given tax year or in the tax return submitted in the year preceding the given tax year by two years.
Small taxpayers and the taxpayers who start their business activity have a possibility to pay advances tax in a quarterly system.
Taxpayers are obliged to submit the tax return on the amount of income (loss) gained in the tax year before the end of the third month of the following year. In that period the taxpayers are obliged to pay the due tax or the difference between the tax on the income indicated in the tax return and a sum of the due advances over the period from the start of the year.”
“The goods and services tax (VAT) was introduced into Polish tax system in 1993. Regulations in the field of VAT have often been amended in order to harmonise Polish solutions relating to turnover taxes with the current European common system of value added tax. At present, the fundamental legal act in the scope of VAT is the Act of 11 March 2004 on the Goods and Services Tax.
Subject of the tax
In principle, VAT taxpayers are natural or legal persons as well as organizational entities without legal personality carrying out economic activity regardless of the aim or result of that activity.
Economic activity covers all activities of producers, traders or service providers, including entities obtaining natural resources and farmers as well as activities of the professions also when a business activity is performed ones, but in circumstances indicating an intention to perform it regularly.
The exploitation of tangible or intangible property for the purposes of obtaining income on a continuing basis is regarded as an economic activity.
Public authorities and offices providing service for such authorities within the scope of public tasks, excluding activities performed under civil law contracts are not treated as taxpayers.
Object of the tax
The following activities are liable to VAT:
1. supply of goods for consideration and the supply of services for consideration within the territory of the country,
2. exportation and importation of goods,
3. intra-Community acquisition of goods for consideration within the territory of the country,
4. intra-Community supply of goods.
The following activities are not subject to VAT:
• sale of an enterprise or an organised part of an enterprise,
• activities that cannot be the subject of a legally effective contract.”
SOURCES AND USEFUL LINKS:
1. The Act of 26 July 1991 on income tax from individuals.
2. Act of 15 February 1992 on income tax from legal persons.
3. The Act of 11 March 2004 on Tax on goods and services.