Taxation and Deductions

Natural persons in Poland are subject to personal income tax (PIT). They are considered to be taxpayers with reference to their worldwide income – unlimited tax liability, tax residence in Poland – or income sourced in Poland, in case of a limited tax liability (no tax residence in Poland).

Personal income tax regulations in Poland define several income sources. Profit from each of the sources is calculated separately, in many cases in accordance with a specific taxation method.

In general a progressive scale of 18% and 32% tax rates applies to personal income. In general other methods of taxation apply to income from business activity or rental income. Taxpayers are obliged to make monthly advance payments for the income tax. They also file a yearly tax return and settle the tax due or obtain a refund in case of an overpayment.

Planning tax settlements in Poland allows for using optimization opportunities. Even transactions undertaken on a one-off basis are worth structuring and planning, in order to minimize risks and burdens.

Within this line of services You will be able to subscribe to supervision of Your yearly tax settlements in Poland. The objective and outcome of the service shall be preparation of Your yearly settlements in form of a tax return to be filed with the tax authority in Poland.

DEDUCTIONS

Please find below a general description of some of most popular deductions and exemptions available in accordance with the Polish Personal Income Tax Act.

Contributions
Income taxable in Poland is decreased by social insurance contributions paid in Poland. Amount of calculated personal income tax is, on the other hand, decreased by health insurance contributions paid in Poland.

Also contributions for obligatory social and health insurance, made in a EU and EEA countries or in Switzerland, can be deducted in Poland, provided that:

  • they have not been deducted, qualified as costs or refunded in any EU or EEA country or in Switzerland,
  • they have not been calculated based on income which is exempt from taxation based on the applicable double tax treaty,
  • the applicable double tax treaty provides a legal basis for exchange of information between the tax authorities.

Private health or social insurance contributions are not deductible in Poland.

Internet
Costs of internet borne by a taxpayer during a tax year is deductible from taxable income. The maximum amount subject to deduction is 760 PLN. Expenses on internet must be confirmed with a document issued to the name of the taxpayer.

Children
Amount of calculated personal income tax can be decreased by 1112,40 PLN (data for 2011) for each under-age child and adult child attending school, brought up by the taxpayer. The deduction is available only for periods in which the taxpayer had custody over the child. The abovementioned amount is a limit for both parents.

Expenses related to disability
Expenses for rehabilitation purposes and expenses related to facilitating life functions can be deducted from income of a taxpayer who is disabled or supports a disabled person.

Donations
Donations for designated organisations of public benefit (charities in Poland, in the EU and the EEA) and donations for religious worship made by a taxpayer can be deducted from taxable income. The amount of deduction cannot exceed 6% of a yearly income. Donations for natural persons and for some types of entities are not eligible for deduction.

Business trips
Amounts received from employers as refund of expenses related to business trips (daily allowance, accommodation and travelling costs etc.) constitute an income exempt from taxation up to legally determined limits. The limits depend on the country to which the trip was made and the type of expense. Only expenses aimed at obtaining income, which have not been included in the taxable costs are eligible for exemption.

Also a part of income of employees (not contractors or freelancers) delegated temporarily abroad is exempt from taxation, up to a legally determined limit. This exemption applies only to residents.

JOINT TAXATION WITH SPOUSE

In general spouses are subject to separate taxation of income received by each of them. Spouses can also be taxed jointly based on the sum of their separately calculated incomes – after all available deductions. As a result a lower tax rate can be applied to the joint income or to most of it.

Conditions for applying joint taxation of spouses are the following:

  • spouses are married and in marital commonality (joint property) throughout the whole tax year,
  • in case one or both spouses are tax residents of another EU or EEA country or Switzerland – their tax residency is confirmed with a certificate and 75% of their joint income is generated in Poland,
  • spouses apply for joint taxation in their yearly tax return filed in due time (until April 30th),
  • neither of the spouses are subject to flat rate taxation on any of their incomes (except income from rental agreements).