I will never forget the busy weeks between February and April this year, when I published my articles about the PIT-37 frequently used for personal income tax. I got many questions regarding tax residence that required the help of accountants. Since that time I’ve been waiting with the hope that one day some expert would offer to write an article covering this topic. This is why I’m so happy to publish this text prepared in collaboration with the team of SOVA Accounting.
SOVA Accounting is a Polish-British accounting firm focused on accountancy services like bookkeeping and business costs reduction.
First we asked readers of JustAsk Poland to send us their questions because we wanted this article to cover real and important problems. Experts from SOVA Accounting answered your questions in Polish and I did my best to translate them to English. Right now Sofia, my friend and a JAP reader, is working on a Russian version in order to enable us to spread this knowledge among more expats.
Please note that I’m not a professional translator and you cannot hold SOVA Accounting responsible for your decisions based solely on this text. For further details and verification of provided information please contact them directly at email@example.com.
What is Polish tax residence?
Tax residence is a permanent place where a taxpayer complies with tax liabilities. What’s important is that rules for determining tax residence are defined by international law rather than domestic provisions. The most significant regulations in this matter are double taxation treaties concluded between countries.
Key criterion for establishing tax residence of a private individual in Poland is a centre of vital interests (personal and economic relations). In order to settle this criterion we consider factors such as social activity or civic participation, or we specify the main source of the taxpayer’s revenue. Also, a person who stays on the territory of Poland at least 183 days during a tax year can become a Polish tax resident.
It’s worth knowing that the 183 days residence requirement doesn’t need to be fulfilled on a permanent and uninterrupted basis, what means that, for example, even if you go away for 4 months to another country and then you come back to Poland, you still have the right to be a Polish tax resident.
Working in several countries one after another during a tax year
It is crucial to establish the tax residence of a person who works and earns revenue abroad in order to specify his or her responsibilities to the Polish administration. If Poland is your place of residence, you are required to report all your revenue earned in a given year, including revenue earned abroad.
I worked in Italy up until March, and since then I’ve been working in Poland. How should I settle my income tax liabilities?
In accordance with the provisions the tax year of a private individual in Poland equals a calendar year. Therefore, if you stayed on the territory of Italy for 3 months, and then you’ve spent the rest of the tax year (that is more than 183 days) in Poland, you’re required to settle personal income tax by Polish rules, and this applies also to money that you earned abroad.
According to the tax rules, a Polish tax resident should apply the so called exemption with progression method for income earned from work performed in Italy. As a result, the Polish tax office will exempt income earned in Italy from taxation in Poland. If you currently settle your income tax on the basis of a tax scale method, you should fill out a Polish PIT-36 form and an attachment called PIT/ZG using the exemption with progression rule.
At the same time you should use a specific tax rate for your income earned in Poland according to the following scheme:
- Add your income which is taxable in Poland to income that is exempt from Polish taxation (money earned in Italy), and then calculate your tax out of the this entire sum according to the tax scale;
- Then divide the tax calculated from the sum of your income earned in Poland and abroad by your total income and multiply the result by 100 in order to get the percentage rate.
- The percentage rate calculated in this way is used for final personal income tax calculations which apply to income taxable in Poland.
I used to work in Poland for half a year, but then I came back to Ireland. Should I settle personal income tax in Poland and if so, should I include my income from Ireland as well?
In the described scenario it is crucial to know how long you were staying on the territory of each of these two countries during the tax year. According to the tax residence provisions a person is recognized as a Polish tax resident if he or she spent at least 183 days on the territory of Poland. As far as Ireland’s residency is considered, this provision applies as well, but in addition one can become an Irish tax resident if they were staying on the territory of Ireland for 280 days in a given and previous tax years all together.
If you fulfill one of the above mentioned requirements, according to the Agreement between the Government of the Republic of Poland and the Government of Ireland for the Avoidance of Double Taxation you won’t be required to settle your personal income tax in Poland, because Irish tax residents comply with tax liabilities for all their income (no matter where it was obtained) in Ireland.
However, should clear establishment of your tax residence be impossible on the basis of the above-mentioned rules, the final decision in this matter will be made on the basis of agreement between Irish and Polish tax authorities.
I’m a foreigner who lives and works in Poland. If I left Poland for a few months in order to work over the holidays in another country, should I pay taxes here for my foreign income as well?
If you’ve gained profit from a summer job abroad you are required to include it in your annual tax report in Poland. The way of settling foreign income depends on the country where it was earned, more specifically on a double tax treaty concluded between Poland and the country where you worked. The most profitable form of settling taxes from income earned abroad is the so called exemption with progression method that can be applied for income earned for example in Austria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Greece, Ireland, Japan, Canada, Lithuania, Latvia, Germany, Norway, Portugal, Slovakia, Sweden, Ukraine, the United Kingdom or Italy.
The exemption with progression enables you to avoid paying taxes in Poland for your income earned abroad. However, in order to establish a tax rate that will be used to tax your income earned in Poland you will use a rate calculated for your total income (both foreign and Polish).
I’m a freelancer and a digital nomad (I earn money online so I am free to easily relocate). Do I need to register in the Polish tax office and pay personal income tax in Poland if I live here, but don’t work for any Polish company, or can I still pay my taxes in my country of origin?
In the described scenario it is crucial to specify if the country where you currently pay your taxes has concluded a double taxation treaty with Poland. If such an agreement has been reached, you are not required to pay taxes in Poland. You will find the full list of countries that signed agreements for avoidance of double taxation with Poland here.
My wife is Polish, I come from Israel. I run my business based in Israel online, but we live together permanently in Poland. Am I required to pay personal income tax in Poland if I have only an Israeli bank account and I earn all my money there?
According to the Agreement between the Government of the Republic of Poland and the Government of the State of Israel for the Avoidance of Double Taxation, if you remotely manage a company in Israel (and therefore Israel is your economic interest center) you are not required to pay taxes in Poland. However, this provision applies only if you don’t have a permanent establishment (fixed place) of your business activity on the territory of Poland.
It will also depend on the source of income. If we are talking about remuneration for holding the position in the management board of an Israeli company, there is no requirement to pay taxes in Poland.
My partner and I are Australian. For the last 7 years we’ve been living in Germany. We run a business registered in Germany and in Australia. My partner will spend the next 10 months studying in Poland, so we want to reside here together for a while. Should we pay personal income tax in Poland?
In the Agreement between the Federal Republic of Germany and the Republic of Poland for the Avoidance of Double Taxation it is written that company profits are taxable only in the contracting state where a company is located, unless this company carries out some form of economic activity in another contracting state through a plant located there. If a company carries out economic activity through a plant located in the other contracting state, its profit can be taxed in another contracting state as well, but only insofar as this profit can be assigned to the plant located there.
The above provision shows that if you run a company based in Germany, profits from this kind of economic activity should be taxed under the German rules. Therefore, in the scenario described by you it is not necessary to pay corporate income tax in Poland.
The same provision appears in the tax treaty between Poland and Australia.
When it comes to personal income tax, you should establish your place of tax residence and pay it there. You need to determine whether your vital interests centre has shifted to Poland for the period of 10 months which you’re going to spend here. However, given that you run an Australian and a German company, presumably with permanent establishments and management centers located in these two countries, you might not be obligated to report your income and pay taxes in Poland.
Foreign, extra source of income
I permanently live and work in Poland and I also have a blog. I was asked to advertise a product from my country of origin and I received money for the advertisement published on my blog. How should I settle tax for it?
This kind of income will be qualified as income from renting advertising space and should be settled by the analogy with income earned from property rental, which is by using the 8.5% flat-rate tax for leasing services. You should submit the PIT-28 form to the tax office.
I’m a foreigner living permanently in Poland and working for a company on the basis of an employment contract for a company here. I generate additional revenue from selling my pictures on foreign royalty-free websites like Shutterstock, iStockphoto, Envato, or Etsy. Should I pay tax for it?
This type of income should be reported on the PIT/ZG attachment together with a Polish PIT tax return form, with the income source recognized as „5. Prawa autorskie i inne prawa, o których mowa w art. 18. ustawy” – “5. Copyrights and other rights referred to in Article 18 of the Act“.
I rent a flat in my hometown in another country, but I permanently live and work in Poland. In which country should I settle income tax for renting an apartment?
Income from rental of an apartment should be settled in the country where the property is located.
I keep a share of a company in my country of origin and I have income from this. For the last 3 years I’ve been living permanently in Poland. Where should I pay taxes from income from dividends?
Dividends shall be subject to the corporate tax in the place of the company’s location (country of origin) and the 19% flat-rate personal income tax in Poland, the current country of tax residence.
Tax from dividends should be paid until the 20th day of each month after the month when the dividend was paid out. The calculated tax amount should be submitted to the tax office on the PIT-8AR form by the end of January of the year after the year when the dividend was paid out, and also IFT-1R information should be submitted by the end of February of the same following year.
I sold shares of my American company and now I would like to transfer money to Poland. How should I pay income tax for it?
Income from sales of shares of a foreign company should be taxed in the country where the company is located, unless shares have been sold to a company based in Poland and the sales contract was also concluded on the territory of Poland.
I’m moving from Poland in June and I won’t earn revenue here anymore. Can I submit my PIT tax return form earlier?
If you’re moving out of Poland for good in the middle of the year (but before the end of 183 days period), there is no possibility to settle your personal income tax earlier.
However, please remember that if your Polish income inflow ceases during a year, you should divide a tax year into two periods. The first one shall be deemed to begin on the 1st of January and end on the day when you moved out, and the second period should start on the day of departure and last until the 31st of December. If you won’t earn any income in Poland in the second period, your PIT tax report will include only your revenue from the first half of the year, because on the day of departure a change of tax residence occurred.