'Cause I'm the taxman, yeah, I'm the taxman'

It's that time of year again when the phrase "I need to start thinking about my Polish tax bill" begins echoing through your head - much like the unwanted lyrics of the last song you heard on the radio this morning. We all have the tendency of wanting to put off the blessed moment of making the inevitable payment to the fiscal office for as long as possible. And we find the justification for doing this in the benign recollection, "Well, I've paid tax every month, so there shouldn't be much more due at the end of April." But a word of caution to those who have other means, especially securities investments. As a general rule, all investment income is taxable in Poland and should be included in your annual tax return, due to be filed and paid in full by April 30. Before you start having nightmares and anxiety attacks wondering where to find the money for the tax, dedicate a few minutes of your time to reading the answers to the most commonly asked questions regarding this matter. This should prepare you to budget your cash flow for the coming months, including setting resources aside for the long weekend in May, which immediately follows the tax-filing deadline.

" I exercised share options during 2001 and also received new options from my employer. Do I pay Polish tax on that? Generally, if your employer grants you options over shares, that is not a taxable event. When you decide to exercise your options - to acquire shares from your employer at a discount - that discount is treated as a taxable in-kind benefit. The Polish tax law provides for an exemption of such income from tax under certain conditions, for example, for newly issued shares within a qualifying employee stock-option plan duly adopted by the corporate governing body. The tax exemption also applies under separate provisions in the law with regard to shares of quoted Polish companies. Expatriates working in Poland need to consider whether the options granted and exercized were related to their employment while in Poland or abroad. Individuals residing in Poland on a temporary basis and having limited liability to Polish tax would not normally be subject to Polish tax on the exercise of options - if the respective options were granted and exercised in relation to duties/work performed outside of Poland.

" Will I be taxed on capital gains realized in 2001? Capital gains are taxable in Poland as ordinary income at progressive rates up to 40%. If gains are realized on the stock exchange under a qualifying share issue of a Polish quoted company, they can be exempt from tax altogether. In the case of foreign stock, the capital gains would normally attract Polish tax. Individuals with unlimited liability to Polish tax can credit any foreign tax paid on the capital gain against the attributable Polish tax or can claim a tax exemption under the applicable double tax treaty. Good news for expatriates with limited tax-liability status in Poland - they do not have to worry about reporting the capital gains generated from the sale of foreign stock to the Polish tax office or paying tax thereon as this is treated as a non-Polish source.

" Do I need to pay tax on dividend income in Poland? Portfolio management is not an easy job. If you have decided to keep your investments intact waiting for the capital markets to pick up and hoping that companies will not re-invest 100% of their profits back into business, remember that dividend income is also something the state is looking at taxing at progressive rates. It doesn't matter that you have taken on the investment risk, the earnings still need to be shared. Based on the applicable double tax treaty or even Polish domestic law, you can claim an exemption from payment of Polish tax or more often a tax credit for any foreign taxes withheld at source against your Polish tax liability on the foreign dividend income. As the news in this article gradually unfolds, most of you have probably asked the question and found the right answer to what happens to those lucky ones with limited liability to Polish tax. Correct, they do not have to pay Polish tax on their foreign dividend income.

" Do I have to pay tax on treasury bills/bonds/interest/coupons? Let's imagine that you received a 25-year U.S. treasury bond as an unpretentious present. Putting aside the complex gift tax implications, the only worry that remains is the receipt of the foreign coupon, which is taxable at progressive rates. Any foreign tax withheld at source, for example by the U.S. treasury, is creditable against the respective Polish tax liability, or an overall tax exemption applies - depending on the double tax treaty provisions. As a motivation for investment in qualifying Polish treasury bills/bonds, in 2001 the Polish law exempts from tax the related interest/coupon income. Once again, individuals with Polish limited tax liability are not taxed on interest/coupon income if it arises from foreign treasury bills/bonds.

" I am a foreign national residing temporarily in Poland. Do I need to pay the 2% capital tax on transfers abroad from my Polish bank account? Since the Jan. 1 introduction of a 2% capital transfer tax, Polish authorities have not provided a formal interpretation on its application. A little bird tells us we may soon have some formal official guidance on its application. If our little bird is correct, the guidance is likely to go in the direction of narrowing the scope of persons falling under the regulation - hopefully exempting non-Polish residents for currency control purposes from the 2% tax. So much for year-end tax or rather cash flow planning. Thanks again to Donka for the tips and pointers set out above. On a less serious note here are some other, rather more extreme, tax planning ideas from BBC Radio 4 late last year.

I hasten to add I do not recommend that you actually try any of these in practice: 1. If one spouse has a much larger pension pot than the other, divorce before retirement to equalize! 2. Inheritance tax planning: elderly parents divorce, their children divorce, parents marry son/daughter-in-law. On death, estate passes free of IHT to the next generation. 3. Simplest of all: to avoid capital gains tax - die!

Anna Szymańska is a tax senior manager in the Warsaw office of Andersen.