The two certainties - death and taxes

Unfortunately, many foreign nationals have a mistaken belief that Polish legislation does not apply to them. Add this to the fact that death is something most people would rather not think about, and maybe we can understand why over 60 percent of foreign residents in Poland die without ever having made a will.

The regulations governing inheritance are contained in Book VI of the Civil Code of 23 April 1964. The basic rule is that the national succession law that applies  to the estate is determined by their country of residence of the deceased person. A foreign national who has a Polish spouse, dual national children, real estate and a bank account is more likely to be liable to Polish succession law than the law of their country of citizenship.

Poland has forced heirship rules, which means that a certain portion of the deceased's estate must be used for the maintenance of a spouse and/or children. The remainder may be disposed of as the deceased wishes. In the case of a single person without dependents, there is full freedom to dispose of the estate by the provision of a will.

Married couples

With regard to inheritance issues dealing with married couples, there is a general rule that one must treat assets owned by the partners before marriage separately from those acquired during the marriage.

Any assets acquired by the partners before marriage may be disposed of as the relevant partner sees fit. The surviving partner does not have any claim to these. Any assets acquired by the partners during the marriage are deemed to have been owned jointly, unless the partners have agreed to a division of marital property in the presence of a notary public. In this case, although the will may bequeath all or some assets to a person other than the surviving partner, the surviving partner may apply to the court for his/her interests to be protected. In this situation there would be a right to 50 percent of the estate for lifetime use and benefit.

Have a plan

This means that foreign residents who do not wish their estate to be governed by Polish legislation need to have a plan. In other jurisdictions, the basis of estate planning is the creation of a trust, but in civil law jurisdiction it is impossible to create a trust under Polish law. Moreover, Poland is not a party to the Hague Convention on the Law Applicable to Trusts and on their Recognition of July 1, 1985.

In practice, Polish courts may occasionally recognize a foreign trust, but such precedents are not binding and should not be relied upon. The usual workaround is for a foreign trust to create a legal entity recognized by Polish law - such as a partnership or a limited company - for the ownership of assets in Poland.

Inheritance tax

One positive change which the current coalition government has brought about is a change in the taxation of inheritances.

The inheritance-tax provisions are contained in the Law on Inheritance and Gift Tax of July 28, 1983. The main feature is the division of heirs and recipients into three groups for tax purposes - immediate family, distant family and others. The tax rates are three percent to seven percent for the first group, seven percent to 12 percent for the second group and 12 percent to 20 percent for the third group. The annual exempt amounts are in 2007 zł.9,637, zł.7,276 and zł.4,902, respectively. Certain assets may be exempt from this tax, including agricultural land and small residential property.

Provided that the appropriate tax office is notified of an inheritance within one month of the taxable event, and the heir is in the deceased's immediate family, the inheritance will be exempt from inheritance tax.

Non-resident heirs are taxed only on inheritance of real estate located in Poland, provided that the deceased was nether a Polish citizen nor a permanent resident of Poland. However, if the deceased was a Polish citizen or a permanent resident of Poland, then any inheritance relating to rights or assets located in Poland are taxable. Heirs who are either Polish citizens or permanent residents of Poland are taxed on their worldwide inheritances.

Richard Wernick

Richard Wernick is managing director of Totalserve (Polska) Sp. z o.o. He is a chartered tax advisor and registered trust and estate practitioner and has been practicing in Poland since 1997