"Tax Watch": Don't let April 30 be a nail-biter, file early

I cannot ignore the fact that my firm's name has been in the press lately. But whether Andersen is subjected to a makeover and given a new name or whether we join another firm, we are still very much business as usual and you still have to pay taxes. Your annual returns are due very soon. With April 30 looming, it's time to get out those pocket calculators and try desperately to remember what your tax adviser told you - many moons ago when you arrived in sun-soaked Poland - to ensure that your tax affairs are in order. Those who have already had their tax return prepared by a trusty tax adviser may skip straight to the restaurant review this week. The rest of you should read on. Please note, though, that because my column has a word limit the text below has utilized some telegraphic shortcuts - if you are in any doubt as to your exact tax status please make sure you double-check with your tax adviser.

To complete your 2001 tax return in Poland, first determine your tax status. Were you here for less than 183 days in 2001 and paid entirely from abroad, with the cost not recharged to Poland? If so, stop here. Assuming you stayed a tax resident of that other country and it has a double-tax agreement with Poland, then you are able to exclude this income from being taxed in Poland. If you exceeded 183 days in Poland, read on. Were you employed by a Polish company formed with foreign participation? If so (and assuming you are here for a temporary stay) please write the words "limited tax liability" in the margin somewhere and carry on. If you are Polish, were only employed by a foreign company, are here only as a board member, or in some other way where you did not have a Polish employment contract, write the words "unlimited tax liability" somewhere. The tax situation for an expatriate with unlimited tax liability is exactly the same as for a Polish national. If you received employment income from a Polish company, you will have received the form PIT-11. If you were paid from abroad but someone was preparing your monthly tax filings for you (rather than simply "on your behalf") you should have received a form IFT-1. If you only received employment income from a Polish company, it can compute your annual tax adjustment in March or April, and make the adjustment against your tax for that month (but you may need to remind them!).

Strictly, if you receive any other income taxable in Poland, even if it is income that does not need to be included in the annual tax return, such as management board fees for people with limited tax liability, or if you receive non-taxable income for work performed abroad (limited liability) you are not entitled to have the employer file the annual adjustment. Like everyone else, you will need to file a return. This applies even though this is the only income reportable (so if two people have identical Polish salaries, one has foreign income that isn't taxable in Poland and the second doesn't, the first one still has to file an annual return and the second one doesn't - even though their Polish taxability is identical).

Employment income should be taxed at the rates in the table: tax calculation in zŁotys amount of tax due up to 37,024 19% of assessment basis minus 493.32 37,024 up to 74,048 6,541.24 + 30% of amount exceeding 37,024 over 74,048 17,648.44

But first you get a "cost of earnings" deduction of zł. 92.56 per month (zł. 1,110.72 per year). Management board fees and payments under civil code contracts (the umowa zlecenie or umowa o dzieło in Polish) will have had tax withheld or paid at a flat 20% during the year. If you've got limited tax liability (check to see what you wrote down earlier), copy the figures from the PIT-11 (and PIT-51s if appropriate) onto the PIT-37 tax form and calculate the tax. The monthly withholding will almost certainly show that the withholding was not quite the correct tax liability, so you may have a small underpayment. For persons with limited tax liability, it is not necessary to include in the annual return any income taxed at the 20% rate during the year. Note well: For those of you with limited liability and with a civil code contract (umowa zlecenia), which related to management rather than technical duties, BEWARE. Contracts of this nature are at high risk of being reclassified by the tax authorities as "management contracts." The reclassification stems from very specific changes to the Personal Income Tax legislation in force from Jan. 1, 2001. So even though such contracts are in most cases no more or less than personal service contracts (usually subject to the flat rate 20% taxation) if your duties under the terms of that contract were managerial in nature then the flat rate will not be applicable and, although for monthly withholding purposes, the tax advance was at the flat rate of 20%, you will now be expected to make up the difference to the appropriate progressive rate up to 40% depending on the total level of your income, at the annual reconciliation! If you've got unlimited tax liability, you will also need to include the amounts taxed at 20% during the year in your annual return. For the civil code contracts (but not the management board fees) you can obtain a 20% "cost of earnings" deduction, meaning that only 80% of the income goes into your calculation. The top tax rate is effectively reduced to 32%. Note well: Bad news once again if your contract is likely to be a "management contract." In both 2001 and continuing to date, these contracts do not qualify for the 20% flat rate cost of earnings deduction!

The individual deductions for 2001 are: Health care - zł. 370.24 Professional training in higher education - zł. 700 Purchase of computers - zł. 399 Purchase of a house or flat - zł. 30,590 Renovation expenses - zł. 4,620 for a house or zł. 3,850 for an apartment (over three successive years)

For income other than salary or work income, other rules apply. Personal bank account interest is free of taxation in 2001, so that simplifies life. Also profits made from trading on the Warsaw Stock Exchange are free of tax till the end of 2003. If you have limited tax liability, any income received for work outside Poland, or foreign sources of income (for example, from renting out your house back home) are also outside the scope of Polish taxes. If you have unlimited tax liability, these are taxable. There are a few deductions that can be taken, such as donations to scientific, cultural, educational or sporting organizations (up to 15% of income) or for charitable or religious purposes (up to 10% of income). Additionally, deductions against your tax liability are allowed for various things. All of these are expressed as a deduction of up to 19% of the amount spent, with a limit to the total deduction.

Deductions cannot be taken against income being taxed at the 20% flat rate. Additionally, joint returns can only be filed where both spouses have unlimited tax liability. The filing deadline is April 30, and just like the editor with late submission of "Tax Watch" columns, there are no extensions permitted under the law (although I've never known a tax office refuse the money if the interest is paid on the late tax payment) - so let those fingers do the walking, start clicking away at those calculators and get those pocketbooks ready. Remember the old saying, "a tax return on the day keeps the tax man away." Happy filing.

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