The nitty-gritty details of the PIT changes
Limited tax liability The 183-day rule will be eliminated. The rule grants limited or unlimited liability, depending on whether you stay less or more than 183 days in Poland, and allows individuals to obtain limited tax liability through an employment contract concluded with a company with foreign participation. The tax status of an individual will depend solely on his place of permanent residence, with consideration given to the double tax treaties. Individuals with a place of residence in Poland will have unlimited tax liability (that is, worldwide income taxable in Poland), while those with a place of residence outside Poland will have limited tax liability. There is a risk that the tax authorities may seek to claim that some expatriates working in Poland are Polish residents, and consequently the 20% flat rate on service (management) contracts and management board fees could be queried.
Business activity Business activity will be defined for PIT purposes by reference to the tax ordinance. Business activity will mean any payable activity (apart from the ones stipulated in the PIT Law - for example, freelancer contracts) conducted on either one's own account or on behalf of third parties.
Damages Damages will be tax exempt only if the right to receive such damages and the amount or the rules of determining the damages are "directly" provided in the law. Moreover, damages will be taxable if paid under an agreement or settlement. The lucrum cessans damages (loss of profit) have also been clearly confirmed taxable.
Disposal of real estate Income from the disposal of real estate also will be exempt if credited against a mortgage drawn no more than two years before the disposal of the property. This provision will not apply if the mortgage has been subject to the new housing allowance whereby interest accrued and paid is deductible from taxable income. The new tax allowance will be available to individuals with unlimited tax liability only.
Provision of housing for employees If the employer is obliged by law to provide employees with housing, the housing will be tax exempt up to the value of three times the lowest compensation as announced by the Labor Ministry.
Cost limit for managers Tax deductible costs in the case of income from board membership and management contracts will be limited to 0.25% of the first tax bracket (as in the case of employment income) without the possibility of proving higher actual costs. Limit for house repair and modernization allowance The basis for the limit on the house repair and modernization allowance, once calculated for the first year, cannot be lowered in subsequent years due to changes in the official index announced by the Finance Ministry.
Redemption of shares The redemption of shares acquired for a contribution in kind of an enterprise will not be subject to withholding tax. Such income will be subject to progressive taxation. The book value of the net assets of the enterprise as of the day of contribution will be a deductible cost (however, no more than the par value of shares as of the day of contribution). The new rule is applicable to shares acquired after Dec. 31. Voluntary redemption of shares will be subject to withholding tax.
20% withholding tax on services Income received by individuals subject to limited tax liability from rendering services without a tangible effect (especially all advisory, marketing, management, controlling and extending guarantees) will be subject to 20% withholding tax unless the double tax treaty provides otherwise. PIT-11 and IFT-1 documentation requirements The due date for tax remitters to provide individuals with the PIT-11 and IFT-1 forms will be Jan. 31 of the year following the tax year.
Tax on capital transfer The 2% tax on amounts transferred abroad will no longer be in force. Thus ends my miniseries - for now. Before these proposed draft amendments reach the president's desk for signature (or veto; who knows?), they have to be debated and passed by the Senate - with or without further amendment - and have to pass once more through the Sejm. I will have my ear to the ground and will keep you posted of progress. In the meantime, carefully planned to coincide with the WBJ's summer break, your trusted correspondent is off on vacation. See you all in September!
Anna Szymańska is a tax senior manager in the Warsaw office of Ernst & Young.
