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Jacek Bajson |
Poland's revised Personal Income Tax (PIT) will enter into force on January 1 2007.
In spite of initial plans to decrease tax rates, they will remain the same until 2008. The maximum tax rate amounts to 40%. In 2009 it will be decreased to 32%. For 2007 and 2008 some slight changes concerning tax bands , and the possibility of deduction of cost of gaining income will be introduced. But the changes will not bring a substantial savings for taxpayers.
What may be more important for foreign investors is the planned change in the definition of tax residency status. These changes may have serious impact on taxation of individuals seconded to work in Poland.
PIT regulations provide that a Polish citizen with a permanent place of residence in Poland pays taxes from worldwide income regardless of the revenue source (unlimited tax liability). Individuals without a permanent place of residency in Poland are taxed on Polish income (limited tax liability) and are taxed at a lower tax rate on foreign income.
According to the planned changes, a person will be treated as having tax residence in Poland if: he/she
has closer personal and economical ties with Poland than wit h other jurisdictions, or
stays in Poland for more than 183 days in a tax year.
If a person stays also in the territory of another country, its ultimate tax residence would be defined according to double taxation treaties to which the Republic of Poland is a party.
If the proposed changes enter into force, some individuals who are now treated as non-residents (due to the temporary nature of their stay in Poland) will be subject to unlimited tax liability .This may take place if they stay in Poland for more than 183 days in a tax year and are not able to prove that they have tax residence in another country (on the basis of double taxation treaty). Consequently, their income, for example, from a mandate contract, management contract, director's fee (which is now subject to 20% flat rate tax), would be taxed on a progressive scale of 19%, 30%, and 40% starting from the next year.
For the existing non-residents who may be treated as residents beginning from the next year, the taxation base would also be changed. Non-residents are now subject to Polish tax derived only from work performed in Poland on the basis of an employment contract, regardless of the place of payment, and from other income derived in Poland. According to the new regulation, they would be taxed on the same basis as Polish residents, that is, on worldwide income, including income earned abroad.
If the regulation enters into force, it would be advisable to obtain a certificate which proves that a given individual is subject to taxes in a country with which Poland entered into a double taxation treaty. This would allow an individual to prove that he/she is a tax resident in that country.
The proposed changes in PIT regulations will also affect Polish citizens moving abroad. It will be easier for them to prove that they are not tax residents in Poland.
Jacek Bajson (jacek.bajson@mddp.pl), Warsaw
