Tax Guide for US Expats Living and Working in Poland
Who Is Liable For Income Taxes in Poland
Residents are taxed on worldwide income. Non-residents are taxed on Polish-source income only.
Under domestic law measures, individuals who have their center of personal or economic interests (a center of vital interests) in Poland or stay in Poland for a period exceeding 183 days in a given tax year are generally considered Polish tax residents. Individuals who do not have their center of personal or economic interests in Poland and stay in Poland for a period shorter than 183 days in a given tax year are taxed in Poland only on Polish-source income.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable compensation includes salaries, bonuses and other compensation from employment exercised in Poland, regardless of whether paid in cash or in kind.
Education allowances provided by employers to their local and expatriate employees’ children 18 years of age and under, as well as the cost of additional (not provided for by the labor law) medical packages provided to employees, are taxable for income tax and social security purposes.
Self-employment and business income. Taxable self-employment income consists of income from self-employment activities after the deduction of allowable expenses. Self-employment income is taxed with other income at the progressive rates.
Under certain circumstances, self-employment income may be taxed at a 19% flat rate (the difference between earnings and tax-deductible costs equals taxable income). Real estate rental income may be taxable as self-employment income or may be treated as a separate source of income.
Directors’ fees. In general, directors’ fees paid to residents are taxed with other income at the rates. Directors’ fees paid to nonresidents are subject to a final withholding tax of 20%.
Investment income. Interest income derived in Poland (except for interest derived from loans connected with business activities) and income derived from capital (investment) funds in Poland are generally taxed at a flat rate of 19%. Dividends from Poland are generally taxed at a flat rate of 19%. In general, interest on personal bank account deposits is taxed at a flat tax rate of 19%. In principle, all of these taxes are withheld at source.
Income from the rental of real estate is taxed at the progressive rates. Rental income may also be taxed at a flat rate of 8.5%. For the taxation of real estate sales, see Capital gains.
Taxation of employer-provided stock options. In general, employer-provided stock options are taxed at the time of exercise on the difference between the fair market value at the date of exercise and the exercise price. This amount is generally taxed at the standard progressive tax rates. However, this amount may be exempt from tax for individuals granted the right to obtain shares of a company seated in a European Union (EU)/European Economic Area (EEA) country, based on a resolution of the shareholders’ meeting.
At the time the shares are sold, an amount equal to the sale price decreased by the exercise price and by the amount of the taxable income recognized at the time of exercise is taxed at a 19% rate.
Capital gains. Capital gains derived from the sale of real estate acquired or built before 1 January 2007 are taxed at a flat rate of 10% on the sales price.
In general, real estate income is taxed at a flat rate of 19%. Real estate income equals the difference between the sales price and respective expenses, which include the purchase price.
However, in both cases, if the sale of real estate occurs more than five years after the end of the calendar year in which the real estate was acquired or built (six months for other property, counted from the end of the month in which the property was acquired), the proceeds of the sale are not subject to tax.
Income derived from the sale of shares is subject to tax at a rate of 19%.
Deductions
Personal deductions and allowances. Small personal deductions or allowances may be claimed in calculating income tax.
Deductible expenses. A limited number of deductions and credits are allowed, and only a few apply to nonresidents. Donations to public benefit organizations and religious institutions are deductible from income, up to 6% of the annual taxable income. Expenses up to PLN 760 incurred with respect to Internet access in the place of residence are deductible from income. In addition, a credit of PLN 1,112.04, which is subtracted from the tax liability, may be claimed for each child for tax purposes.
Business deductions. Self-employed individuals may deduct most costs related to generating business income, unless they are subject to lump-sum taxation.
Relief for losses. Losses from self-employment activities may offset income only from the same source. Unused losses may be carried forward for the following five years. However, not more than 50% of the original amount carried forward may be offset against profits in each of the following five years. Consequently, part of the benefit of the losses carried forward may be forfeited if a taxpayer has insufficient profit from a particular income source.
B. Inheritance and gift tax
In general, inheritance tax and a tax on gifts apply to assets that are located in Poland or property rights executed in Poland. In certain cases, the acquisition through inheritance or gift of immovable property and other assets located abroad is taxable if at the time of inheritance or execution of a donation contract, the acquirer is a Polish citizen or has permanent residence in Poland.
Tax rates are progressive and range from 3% to 20% for 2011, depending on the recipient’s relationship to the donor or the deceased. The recipient of the property is required to pay the tax due. Under specific conditions, the closest relatives of the donor or the deceased are exempt from inheritance and gift tax.
C. Social security and health care taxes
Social security. Social security contributions are paid partly by the employer and partly by the employee. Contributions are levied at the following rates calculated on the employee’s gross remuneration.
Health care system. Contributions to the health care system are levied at a rate of 9% on the employee’s assessment base, which is gross remuneration after deduction of the employee’s contributions to retirement, disability and sickness insurance. In general, health care contributions are partially (7.75% of the health care base) deductible for personal income tax purposes.
Double tax relief and tax treaties
Poland has entered into double tax treaties with the countries listed below. Most of the treaties follow the Organization for Economic Cooperation and Development (OECD) model convention.
Albania
Ireland
Romania
Algeria (a)
Isle of Man (a)
Russian Federation
Armenia
Israel
Saudi Arabia (a)
Australia
Italy
Singapore
Austria
Japan
Slovak Republic
Azerbaijan
Jordan
Slovenia
Bangladesh
Kazakhstan
South Africa
Belarus
Korea (South)
Spain
Belgium
Kuwait
Sri Lanka
Bulgaria
Kyrgyzstan
Sweden
Canada
Latvia
Switzerland
Chile
Lebanon
Syria
China
Lithuania
Tajikistan
Croatia
Luxembourg
Thailand
Cyprus
Macedonia
Tunisia
Czech Republic
Malaysia
Turkey
Denmark
Malta
Ukraine
Egypt
Mexico
USSR (b)
Estonia
Moldova
United Arab Emirates
Finland
Mongolia
France
Morocco
United Kingdom
Georgia
Netherlands
United States
Germany
New Zealand
Uruguay (a)
Greece
Nigeria (a)
Uzbekistan
Hungary
Norway
Vietnam
Iceland
Pakistan
Yugoslavia
India
Philippines
Zambia (a)
Indonesia
Portugal
Zimbabwe
Iran
Qatar
(a) The treaties have been signed or initialed, but they are not yet in force.
(b) Poland honors the USSR treaty with respect to the former republics of the USSR that have not entered into double tax treaties with Poland.
To learn more about the history, culture, economy and other information about Poland
We have been preparing US income tax returns for US Citizens and permanent residents living in Poland for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Poland and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Poland.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email