PIT 2003 - a procrastinator's guide
Getting out of bed in the mornings becomes a torturous exercise, and fighting sleep over homework on a Sunday night the most detestable of weekly chores.
Working in business is not a whole lot different from going to school. It is only a question of terminology and the intensity of the related symptoms. Consider this: months of hibernation behind office walls followed by 'winter blues,' or SAD (Seasonal Affective Disorder), for those who are more susceptible to mood swings and depression, potentially leading to compulsive money-spending on summer holidays. Homework is still relevant and the task of completing it at this time of year is just as loathsome for most, unless they are tax advisors and make a living out of it.
You should have guessed by now that the homework in question refers to filing your annual tax return by the end of April. If the thought has not crossed your mind, it's either because you belong to the group of school kids who always did next week's homework on Friday rather than Sunday night or you assume that your tax advisor will, or already has, taken care of everything. Whatever the case, your 2003 tax affairs probably deserve a few minutes of your attention now rather than in a month's time when it may be too late. In anticipation of your questions, this week's Tax Eye provides an insight into the most common queries regarding 2003's tax filing.
Do I have to pay tax in Poland?
The general rule is that if you have worked in Poland during 2003, you are required to pay tax on the income attributable to your Polish work/duties. You will hear tax advisers referring to this type of income as 'Polish source income.' Dividends, interest, royalties and rents paid by a Polish company also qualify as Polish sources of income and, therefore, you will be liable to tax thereon.
Polish source income can be exempt from tax in Poland under the provisions of a bilateral double tax treaty. For example, under the double tax treaty signed between Poland and Germany, a German expatriate assigned to Poland would be exempt from Polish tax if Germany preserves full taxing rights on his/her worldwide earnings throughout 2003, provided that (a) his/her stay in Poland in 2003 did not exceed 183 days and (b) his/her remuneration was borne by a German employer (i.e. the cost is not charged to Poland), who does not have a permanent establishment (taxable presence) in Poland.
What is limited vs. unlimited liability to Polish tax?
If you have received tax advice in the past on personal income tax matters, you are bound to have come across the terms 'limited' and 'unlimited' tax liability. Limited liability simply implies taxation of Polish source income and, therefore, is more advantageous for taxpayers than unlimited liability, which gives rise to taxation of worldwide income, regardless of its source. Alternatively, you may hear the term "Polish tax resident" often used to describe persons with unlimited liability to Polish tax.
Another thing to keep in mind is that the rules changed from January 1, 2003. Up to that date, limited liability was available to individuals residing in Poland on a temporary basis under two conditions: (a) if their stay on Polish territory did not exceed 183 days or (b) if they entered into an employment contract with a company formed with foreign capital, regardless of the number of days spent. The new rules, introduced from the beginning of 2003, enable individuals who do not have their domicile in Poland to benefit from the limited tax liability regime, irrespective of their length of stay or the existence of an employment contract.
There is no definition of domicile in Polish tax legislation and, therefore, historically the term has been used in its Civil Code meaning as 'the place where an individual resides with the intention of staying there permanently.' Hence, the main criterion to qualify for Polish limited tax liability is the intention (or rather the lack of such an intention) to stay in Poland permanently.
As you can imagine, due to their subjective nature, intentions are very difficult to prove, especially with the Polish tax authorities. Domicile is, therefore, tested by applying criteria that objectify the intention of someone to reside in Poland temporarily. Such criteria include length of stay in Poland over the years, ownership of immovable property, where the family is staying, where the work is performed, and where the center of economic, social and cultural ties is, etc.
Generally, expatriates who stay in Poland for the duration of their foreign assignments are considered to be residing on a temporary basis and are, therefore, entitled to limited liability to Polish tax, regardless of the number of days spent in the country each calendar year. Practically, a number of them benefit from Polish source taxation without being subject to tax on their worldwide earnings elsewhere, which happens when they break home country tax residency on the grounds of leaving to work abroad.
Am I required to file an annual Polish tax return?
As discussed above, if you are subject to tax in Poland, you are required to report the income in question and pay tax on it accordingly. There are three situations in which you can avoid doing so: (a) if your only income subject to Polish tax is the income derived under an employment contract with a Polish employer (in that case you should ask your employer explicitly to file on your behalf); (b) if you are exempt from Polish tax under a double tax treaty; or (c) if you receive income (e.g. board/service fees, Polish bank interest, etc.), which has been taxed during the year at the preferential 20 percent flat rate, which is final.
If, based on the answers to the three questions above, you conclude that you have Polish tax to pay and to declare by April 30, 2004, don't put it off until after the Easter break. In 2004, even the tax authorities don't have the answers to issues that may appear trivial at first glance, such as finding the proper tax office to file the annual return with. So get your hands on that homework before it's overdue.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
Working in business is not a whole lot different from going to school. It is only a question of terminology and the intensity of the related symptoms. Consider this: months of hibernation behind office walls followed by 'winter blues,' or SAD (Seasonal Affective Disorder), for those who are more susceptible to mood swings and depression, potentially leading to compulsive money-spending on summer holidays. Homework is still relevant and the task of completing it at this time of year is just as loathsome for most, unless they are tax advisors and make a living out of it.
You should have guessed by now that the homework in question refers to filing your annual tax return by the end of April. If the thought has not crossed your mind, it's either because you belong to the group of school kids who always did next week's homework on Friday rather than Sunday night or you assume that your tax advisor will, or already has, taken care of everything. Whatever the case, your 2003 tax affairs probably deserve a few minutes of your attention now rather than in a month's time when it may be too late. In anticipation of your questions, this week's Tax Eye provides an insight into the most common queries regarding 2003's tax filing.
Do I have to pay tax in Poland?
The general rule is that if you have worked in Poland during 2003, you are required to pay tax on the income attributable to your Polish work/duties. You will hear tax advisers referring to this type of income as 'Polish source income.' Dividends, interest, royalties and rents paid by a Polish company also qualify as Polish sources of income and, therefore, you will be liable to tax thereon.
Polish source income can be exempt from tax in Poland under the provisions of a bilateral double tax treaty. For example, under the double tax treaty signed between Poland and Germany, a German expatriate assigned to Poland would be exempt from Polish tax if Germany preserves full taxing rights on his/her worldwide earnings throughout 2003, provided that (a) his/her stay in Poland in 2003 did not exceed 183 days and (b) his/her remuneration was borne by a German employer (i.e. the cost is not charged to Poland), who does not have a permanent establishment (taxable presence) in Poland.
What is limited vs. unlimited liability to Polish tax?
If you have received tax advice in the past on personal income tax matters, you are bound to have come across the terms 'limited' and 'unlimited' tax liability. Limited liability simply implies taxation of Polish source income and, therefore, is more advantageous for taxpayers than unlimited liability, which gives rise to taxation of worldwide income, regardless of its source. Alternatively, you may hear the term "Polish tax resident" often used to describe persons with unlimited liability to Polish tax.
Another thing to keep in mind is that the rules changed from January 1, 2003. Up to that date, limited liability was available to individuals residing in Poland on a temporary basis under two conditions: (a) if their stay on Polish territory did not exceed 183 days or (b) if they entered into an employment contract with a company formed with foreign capital, regardless of the number of days spent. The new rules, introduced from the beginning of 2003, enable individuals who do not have their domicile in Poland to benefit from the limited tax liability regime, irrespective of their length of stay or the existence of an employment contract.
There is no definition of domicile in Polish tax legislation and, therefore, historically the term has been used in its Civil Code meaning as 'the place where an individual resides with the intention of staying there permanently.' Hence, the main criterion to qualify for Polish limited tax liability is the intention (or rather the lack of such an intention) to stay in Poland permanently.
As you can imagine, due to their subjective nature, intentions are very difficult to prove, especially with the Polish tax authorities. Domicile is, therefore, tested by applying criteria that objectify the intention of someone to reside in Poland temporarily. Such criteria include length of stay in Poland over the years, ownership of immovable property, where the family is staying, where the work is performed, and where the center of economic, social and cultural ties is, etc.
Generally, expatriates who stay in Poland for the duration of their foreign assignments are considered to be residing on a temporary basis and are, therefore, entitled to limited liability to Polish tax, regardless of the number of days spent in the country each calendar year. Practically, a number of them benefit from Polish source taxation without being subject to tax on their worldwide earnings elsewhere, which happens when they break home country tax residency on the grounds of leaving to work abroad.
Am I required to file an annual Polish tax return?
As discussed above, if you are subject to tax in Poland, you are required to report the income in question and pay tax on it accordingly. There are three situations in which you can avoid doing so: (a) if your only income subject to Polish tax is the income derived under an employment contract with a Polish employer (in that case you should ask your employer explicitly to file on your behalf); (b) if you are exempt from Polish tax under a double tax treaty; or (c) if you receive income (e.g. board/service fees, Polish bank interest, etc.), which has been taxed during the year at the preferential 20 percent flat rate, which is final.
If, based on the answers to the three questions above, you conclude that you have Polish tax to pay and to declare by April 30, 2004, don't put it off until after the Easter break. In 2004, even the tax authorities don't have the answers to issues that may appear trivial at first glance, such as finding the proper tax office to file the annual return with. So get your hands on that homework before it's overdue.
Donka Darpatova is a tax manager in the Warsaw office of Ernst & Young.
