TAXES IN POLAND
The taxation system in Poland is uniform, equal to foreign and domestic, natural and legal persons. The rules and amounts of tax burdens, as well as the taxpayers' duties are regulated by acts published in Dziennik Ustaw - Dz.U. (The Journal of Laws). Acts may entitle the Minister of Finance to issue regulations. The Minister of Finance specifies by regulation the maximum rates for local taxes established by local self-governments. The Minister of Finance is entitled to interpret tax law ex officio.
International agreements. Poland has signed Agreements for the Avoidance of Double Taxation with 75 countries, based on the 1977 OECD Model Convention, and the Convention on Mutual Administrative Assistance in Tax Matters (Dz. U. 1998.141.913) and the Convention on the Taxation of Road Vehicles for Private Use in International Traffic (Dz.U. 1970.4.31). Poland has also signed 60 international Agreements on Mutual Promotion and Protection of Investments.
Tax Ordinance is a general tax act that regulates the kinds of tax obligations, as well as the tax rules, procedure and time limits for the fulfilment of these obligations, duties to prepare and submit information to the tax authorities, rules of tax proceedings, provisions on fiscal secrecy, and determines the structure of the fiscal administration (Dz.U. 1997.137.926 with subsequent amendments).
Tax authorities of the first instance are revenue offices and heads of boards of local self-government units. Appeal authorities against the decisions issued by revenue offices are fiscal chambers, and against the decisions of heads of boards of local self-government units are local self-government appeal boards. Fiscal chambers supervise revenue offices, they are entitled to appeal against the administrative decisions issued by these offices and separated tax control authorities. If on the basis of separate provisions, the authority of the first instance is a fiscal chamber, the appeal authority is then the Minister competent at the public finance. An appeal against the decision of tax authority of the second instance may be submitted to the Supreme Administrative Court (NSA).
A Taxpayer Identification Number (NIP) is given by the locally competent revenue office to every natural person and enterprise starting or carrying on business activity which has registered in this revenue office. All tax statements and tax returns, correspondence with the tax authorities, as well as issued invoices and notes must contain the taxpayer's NIP (in case of invoices and notes - also the receiver's NIP).
Tax capital group may only be formed by joint stock and limited liability companies having their seats within the territory of Poland, after the following conditions are satisfied: the dominant company's shareholdings in the capital of the dependent company (companies) (excluding the employees' shares and the State Treasury's reprivatization reserve) shall not be lower than 95%, the dependent companies shall not have capital shares of other companies of the tax capital group, the initial (share) capital of each company of the group shall be not lower than 1 000 000 PLN, the income share in the total revenue of the tax capital group in every tax year must not be lower than 6%. An agreement on creation of a tax capital group between a dominant company and a dependent company (companies) must be concluded in the form of a notarial deed for a period not shorter than three years and registered in the locally competent revenue office. Advantages of creating a tax capital group are inter alia the following: non-application of the transfer pricing provisions (exploiting the relations between the taxpayers in order to avoid the fulfilment of the tax liability) to transactions between the companies of the tax capital group, treatment of gifts between these companies as costs deductible from the donor's tax.
Branches of foreign companies established in Poland have to be registered in the court register. The scope of activity of such branches is limited to the scope of activity of a foreign unit. Branches are subject to the same tax provisions as companies-legal persons.
List of taxes and sources of the tax acts:
# direct taxes calculated on the basis of individual income, revenue or property:
- corporate income tax (CIT) - Dz.U. 2000.54.654 with subsequent amendments,
- personal income tax (PIT) - Dz.U. 2000.14.176 with subsequent amendments,
- inheritance and gift tax - Dz.U. 1997.16.89 with subsequent amendments,
- agricultural tax - Dz.U. 1993.94.431 with subsequent amendments,
- forestry tax - Dz.U. 1993.94.431 with subsequent amendments,
- local taxes - Dz.U. 1991.9.31 with subsequent amendments,
- tax on legal activities - Dz.U. 2000.86.959 with subsequent amendments,
# indirect taxes - included in the price of goods and services, which are burden to the final consumer, but the tax remitters are the sellers:
- tax on goods and services (VAT) - Dz.U. 1993.11.50 with subsequent amendments,
- excise duty - Dz.U. 1993.11.50 with subsequent amendments,
- tax on games (turnover tax) - Dz.U. 1998.102.650 with subsequent amendments,
# stamp duty - Dz.U. 2000.86.960 with subsequent amendments,
# contribution to the Social Insurance Institution (ZUS) (quasi-tax) for the compulsory social insurance of employees, which is of both a direct nature (connected with the employee's income) and an indirect one (included by the employer in the labour cost) - Dz.U. 1998.137.887.
Corporate Income Tax (CIT) - this tax is paid by companies and other legal persons, organizational units having no legal personality (with the exception of partnerships having no legal personality), and tax capital groups. CIT-taxpayers having their seat or management office in Poland are subject to tax liability imposed on their total income earned also beyond the territory of Poland, whereas those who have no seat or management office in Poland are subject to taxation of their income earned in Poland only, unless the Agreements for the Avoidance of Double Taxation provide otherwise. Upon a motion of a CIT-taxpayer, after certain conditions are satisfied, a "tax capital group" can be formed - a group of companies treated as one taxpayer.
Tax base is the total of all financial revenues and operational majorities after deducting of the revenue earning costs. Not every expenditure (e.g. some representation and advertising costs) is recognized as revenue earning costs. Fixed assets may be depreciated, write-offs are calculated in principle on a monthly basis, and in case of assets which amount up to 3 500 PLN, write-offs are calculated once at the moment of commencement of their use. Land and works of art are not subject to depreciation.
CIT-rate on legal persons' income amounts to: in 2003 - 27%, from 2004 - 19%.
Tax reliefs. The advantages of income tax preferences and reliefs both for legal persons (e.g. associations of capital) and natural persons (e.g. civil partnerships) are taken by entrepreneurs investing in the special economic zones. Rights to reliefs are achieved together with the acquisition of a permit to carry on economic activity within the territory of the zone. Permits are granted for a specified period of time (not longer than the lifetime provided for a given zone) by the Minister of Economy - or on his behalf by the company managing the zone - by means of a public tender or negotiations commenced on the basis of a public invitation. The amount of a relief depends on the amount of investment expenditures or number of employees. In case of investor's failure to comply with the conditions of permit, the Minister of Economy issues a decision amending or revoking the permit.
Taxation of non-cash contributions. A non-cash contribution in the form of an enterprise or its organized part does not cause the arising of revenue either on the contributor's side or on the company's side which has received the contribution. If there is no revenue, there is no income or tax either. If the non-cash contribution to a company has other form than an enterprise or its organized part, then the revenue arises on the contributor's side which corresponds to the nominal value of shares in the company, taken over in exchange of the non-cash contribution.
Taxation of dividends. Dividends and other income coming from profit sharing in the company of a legal person having its seat in Poland are subject to a lump-sum tax in the amount in 2003 - 15%, in 2004 - 19% of the revenue. The tax is deducted and paid by the company paying the dividends. If the dividend is paid to a foreign subject from a country with which Poland has signed the Agreement for the Avoidance of Double Taxation - the tax rate can be lower. Such taking advantage of the lower rate requires then presentation of a "certificate of permanent residence" issued by the tax authority in the beneficiary's country.
Taxation of interest on loans takes place after receiving it by the creditor. The interest paid to a domestic person and a person having no permanent residence or seat in Poland is subject to taxation in the amount of 20% of the revenue. In case of a foreign person, the Agreement for the Avoidance of Double Taxation may provide a lower tax rate.
Thin capitalization. This is a situation when the activity of companies is financed by means of loans from shareholders when the initial (share) capital amounts to the minimum required by law, usually not adequate to the extent of the activity. If the ratio of the debt to the shareholder, who has at the credited party at least 25% of shares reaches a threefold value of the initial (share) capital, then the interest is not counted towards the revenue earning costs, which means that it cannot diminish the tax base.
Carrying losses forward. A loss incurred by a company-legal person before 1 January 1999 may be deducted from income earned in the three subsequent tax years. A deduction in one tax year must not exceed 1/3 of the total amount of losses. However, a loss incurred after 31 December 1998 can be deducted from income earned in the five subsequent tax years, whereas the reduction of the income in any of these years must not exceed 50% of the total amount of losses. Losses must not be carried back or deducted from the income of the preceding year, or increased in a given tax year by adding the losses incurred in the past years.
Tax on goods and services (VAT) is a tax imposed on the sale of goods and services in Poland. If the total value of sale of goods and services, as well as the total value of export of goods and services did not exceed in the preceding tax year the equivalent in PLN of the amount of 10 000 EUR, then the taxpayer is exempt from this tax. The said amount is 39 800 PLN in 2001. Every sale of goods and services is subject to VAT at the base rate which amounts to 22% or at the reduced rate (7%, 3% or 0%), if a given sale is not exempt from VAT. The tax due to the revenue office is calculated as the surplus of the VAT for the sold goods and services over the VAT for the purchased goods and services stated in the purchase invoices. When crossing the border, foreigners (tourists) may apply for the returning of VAT paid by the purchase of some goods in Poland. The rule does not apply to economic subjects.
Excise duty is imposed on some groups of goods imported to Poland and produced in Poland, on inter alia: engine fuels, alcohol and alcoholic beverages, tobacco products, motorcars, yachts, sailing and motor boats, high-technology electronic equipment and video cameras, beauty products and perfumes, hunting rifles and gas pistols, plastic packaging. This tax is a burden to the producer and importer of excise duty products.
The excise rates in relation to the selling price at the producers', and in relation to the customs value increased by the customs duty at the importers' amount for example to: 35% and 55% on motor gaseous fuels, 40% and 65% on motorcars, 80% and 400% on oil products and synthetic liquid fuels, and 95% and 1900% on spirit and yeast industry products and tobacco products. The Minister of Finance may make during a year and within certain limits some alterations in the excise duty rates.
Personal Income Tax (PIT). Every natural person having permanent residence in Poland is a taxpayer in Poland. The permanent residence in Poland means that a natural person stays within the territory of the Republic of Poland for at least 183 days of the calendar year. A person staying longer than this period of time may be subject to taxation as a non-resident of Poland, providing that this person is employed by a company with foreign participation or a Polish representation of a foreign enterprise or bank. The income earned both in and beyond Poland is subject to taxation. In case of persons having no permanent residence in Poland, the income coming from the Polish source only is subject to taxation. Remuneration for an employment in Poland is considered income from the Polish source irrespective of where it is paid. The income earned by a company having no legal personality (i.e. a partnership) is subject to taxation together with the revenue of every partner in proportion to their share in the partnership. A tax year for natural persons is a calendar year. Tax returns for a given year are to be submitted until 30 April of the following year.
Taxation of personal income applies to all income and received benefits, including revenue from the sale of: shares in limited liability companies, stocks (bought from other sources than public offers), and stocks not quoted on a stock exchange. There are certain tax reliefs and deductions subject to some limits specified in the provisions of law. The latter refer inter alia to expenditure on: rehabilitation, taxpayer's education, extension and modernization of a house or flat. Natural persons' income coming from agricultural activity (except special branches of agricultural production), forestry, and activities which cannot be the subject of a legally effective agreement.
Rates and thresholds for income earned by a natural person in 2007 are as follows: 19% of the tax base minus 572.54 PLN - for the base up to 43 405 PLN; 7674.41 PLN + 30% of the surplus over 43 405 PLN - for the base from 43 405 to 85 528 PLN; 20 311.31 PLN + 40% of the surplus over 85 528 PLN - for the base over 85 528 PLN.
Fixed PIT rates are applied inter alia to income coming from: interest (20%), dividends (15%), sale or exchange of a real estate within 5 years of its acquisition (10%), independent artistic, literary, scientific, educational and journalistic activities, copyrights and inventions (20%). The listed kinds of income are not to be added to income from other sources.
Exemption from PIT is applied without time limit or temporarily inter alia to income from the sale, interest or discount of the following items purchased before 01.12.2001 in public offers, on a stock exchange or on the secondary market: stocks admitted to public trade, securities issued by the State Treasury, and bonds issued by local self-government units, and additionally - nominal value of shares in a company or contributions to a cooperative taken in exchange of a non-contribution in the form of an enterprise or its organized part, amounts paid to employees by virtue of using their private cars for the needs of the employing company. The Act lists over 100 subparagraphs on objective tax exemptions.
Advance tax payments. Employers (natural persons, legal persons and organizartional units having no legal personality) are obliged as PIT remitters to calculate and collect during a year advance tax payments for income earned by persons receiving revenue by virtue of a service relationship, employment relationship, home employment or cooperative employment relationship, cash social insurance benefits, or payments by virtue of a share in the balance surplus.
Local taxes and fees. Local self-government authorities are entitled to specify rates of the following taxes binding within their territory: agricultural tax, forestry tax, real estate tax, tax on means of transportation, dog owner tax, local fees, market-place and administration fees, and rent of commune's quarters. The rates must not exceed the upper limits specified by acts or regulations of the Minister of Finance.
Tax on legal activities is applied inter alia to such activities as conclusion or alteration of some agreements, courts' decisions producing the same legal effects as contracts, establishment of mortgage, contribution of property and contributions to the company's capital. The rates applying to the property and capital of a company are: for the total value up to 20 000 PLN - 1%, from 20 000 to 30 000 PLN - 200 PLN + 0.5% of the surplus over 20 000 PLN, over 30 000 PLN - 250 PLN + 0.1% of the surplus over 30 000 PLN. Tax on a gratuitous use of goods or property rights given to a company - 1%. Remitters of the tax, collected at the moment of conclusion of a agreement, are inter alia notaries.
Stamp duty is collected for activities carried on by the public administration in individual matters, such as receiving of applications and their appendixes, certificates and permits issued upon a motion of the concerned person, powers of attorney, documents of transport, bills of exchange, and activities carried on at the request or upon a motion of the concerned person. It is a transactional tax. The stamp duty rates are most frequently stated on a quota basis.
Charges on labour costs are of a quasi-tax nature. The obligation to pay social insurance contributions (to the Social Insurance Institution ZUS) is imposed on both sides of the employment relationship. The base is the employee's gross remuneration. The contributions amount to: the old-age pension contribution 19.52% - 9.76% paid by the employer, 9.76% by the employee; the disability pension contribution (from 2007.07.01) 10.00% - 5% paid by the employer, 5% by the employee; the disease contribution 2.45% - entirely paid by the employee; the accident contribution (from 2007.04.01) 0,67%-3,60% - entirely paid by the employer; the healthcare contribution (from 2007.07.01) 9% (of 81.29% of the gross remuneration) - entirely paid by the employee. The compulsory contribution to the Labour Fund specified by the Budget Act - amounts to 2.45% of the assessment basis of the social insurance contribution - paid by the employer.
PLN - zloty, the basic monetary unit of the Republic of Poland.