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Introduction to Polish Tax Law. Prof. W. Nykiel Centre of Tax Documentation and Studies University of Łódź. Part I. Glossary. Tax. compulsory unrequited payment to the government (OECD working definition). Unrequited.

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Introduction to

Polish Tax Law

Prof. W. Nykiel

Centre of Tax Documentation and Studies

University of Łódź


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Part I

Glossary


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Tax

compulsory unrequited payment to the government

(OECD working definition)


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Unrequited

benefits provided by government to taxpayers are not normally in proportion to their tax payments


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Return

tax declaration (usually a completed official form) by which a taxpayer reports income, sales and other details and calculates his/her tax liability


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Direct taxes

Indirect taxes


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Income tax

tax imposed on income received which is recognized for tax purposes by taxpayer, reduced by the allowable deductions, exemptions and credits


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Income tax on individuals

(Personal income tax,

Individual income tax)

Income tax on legal entities

(Corporate income tax)

Income tax


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Withholding tax

tax on income imposed at source, i.e. a third party is charged with the task of deducting the tax from certain kinds of payments and remitting the amount to the government


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Turnover tax

general term used to refer to the different forms of consumption and sales taxes


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Turnover

gross receipts, gross amounts due, from the sale of goods or services supplied by the entity


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Value added tax

specific type of turnover tax levied at each stage in the production and distribution process


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Excise duties (Excise tax)

taxes typically charged on products such as alcohol, tobacco and motor fuels


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Death duties

taxes imposed on the transfer of property on death (death duty, inheritance tax, succession duty, tax on transfers by death)


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Gift tax

tax imposed on gratuitous transfer of property among the living,

levied by reference to the value of a single gift or cumulative gifts during a certain period of time


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Property tax

tax imposed on owned

tangible movable or immovable property or both


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Immovable property tax,Land tax,Rural property tax,Urban property tax


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Residencepersonal attachment to the state


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Nationality additional (to residence) basis of subjecting an individual to taxation


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Individuals

Companies

Residence



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Tax liability

  • Unlimited tax liability

  • Limited tax liability


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Juridical double taxation

one person is subjected to taxation twice in respect of the same income


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Economic double taxation

imposition of comparable taxes on different taxpayers in respect of the same taxable income


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Methods of relievingdouble taxation

  • Exemption method

  • Credit method

  • Deduction method


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Part II

Tax System in Poland


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Tax System in Poland

  • Main elements and main features of tax system in Poland

  • Tax liability


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  • Until 1989 the Polish tax system differed substantially from systems functioning in states with a market economy. These differences concerned among other:

  • basic principles of the tax system that were connected with the economic and political regime,

  • sources of tax law,

  • structure and function of the most important taxes,

  • fiscal procedure,

  • tasks and role of fiscal administration,

  • behaviour of the taxpayers.


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  • The structure of budget revenues was also very different from the ones existing in states with a market economy. The nationalised sector was the main source of income for the budget. The most important resources came from nationalised legal entities such as state enterprises and co-operatives. Taxes levied on the private sector of the economy were of very limited importance mainly due to their size. Taxes levied on the population were also of minimal significance.


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  • The reform of the tax system in Poland started in 1989 with the introduction of uniform corporate income tax regardless of the form of ownership thus realizing the principle of fiscal equality. This tax was based on solutions existing in countries with a market economy including those existing in member states of the European Community.


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  • The reform went on with the adoption of the Corporate Income Tax Act of 15 February 1992 currently in force. The act was amended many times, which provoked criticism by representatives of doctrine and practice. On the other hand, it must be emphasised that these changes substantially improve the very structure of the tax and make it similar to modern solutions existing in states with an advancely developed tax system.


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Examples of such solutions are as follows: Tax Act of 15 February 1992 currently in force. The act was amended many times, which provoked criticism by representatives of doctrine and practice. On the other hand, it must be emphasised that these changes substantially improve the very structure of the tax and make it similar to modern solutions existing in states with an advancely developed tax system.

  • according the status of a taxpayer to a capital group,

  • introducing new solutions, based on OECD recommendations, concerning associated enterprises and profit shifting,

  • introducing thin capitalisation rules.


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  • This act, which came into force on 1 January 1992, had effect on several millions of people who became taxpayers of a new tax. It also created new tasks for the fiscal administration. Due to principles governing the very structure and collection methods of this tax, the situation of taxpayers in Poland became to a large extent similar to that of taxpayers in states with a market economy


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  • Within the period from effect on several millions of people who became taxpayers of a new tax. It also created new tasks for the fiscal administration. Due to principles governing the very structure and collection methods of this tax, the situation of taxpayers in Poland became to a large extent similar to that of taxpayers in states with a market economy 1989 to 2006 Poland concluded 57 treaties on the elimination of double taxation within the field of income and capital taxation. This constitutes more than 3/4 of all bilateral treaties on elimination of double taxation concluded by Poland. These treaties are based on the OECD model convention. Concluding these treaties is the result of development in the field of economic co-operation. Moreover, it indicates an evolution of our tax system and depicts the direction of this evolution.


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  • Introduction of the tax on goods and services (Polish VAT) into fiscal system constituted a huge challenge for the Polish legislator. Works on construction of this tax lasted for several years and were inspired by solutions existing in European law, especially in the Sixth Directive (77/388/EEC) These works resulted in the adoption of the Tax on Goods and Services and Excise Duties Act of 8 January 1993.


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  • At the beginning, both the fiscal administration and taxpayers were quite confused as to the application of new solutions. This was due to the scope and complexity of the regulation (the Act, which came into force on 5 July 1993, was accompanied by a huge number of executory regulations), to the completely new legal structure of the tax and some legislative shortcomings.


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  • The analysis of the budgetary revenues structure shows clearly that the two direct taxes (personal income tax and corporate income tax) and the two indirect taxes (tax on goods and services – the Polish VAT - and excise duties) constitute the core of our fiscal system bringing 86 % (2005) of income to the state budget.


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Furthermore, the whole range of taxes on gamesflows into communal budgets. These are:

  • immovable property tax,

  • agricultural tax,

  • forest tax,

  • tax on means of transport,


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  • Among local taxes the one on immovables is of greatest importance, as in many other states. The proposed changes aim at establishing the value of land and buildings as the basis of taxation. Currently the taxable basis in case of buildings is their usable surface and in case of land – its surface.



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  • It is estimated that the Polish tax system suffers a whole range of shortcomings that should be eliminated. The most important ones include:

  • high complication and lack of clarity leading to significant enforcement difficulties for both the taxpayers and fiscal administration,

  • lack of stability.



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During the last period before our accession to the Excise Duty Act came into force implementing the Council directives in Polish domestic regulations covering these taxes. EU, Polish legislator concentrated on changing Polish tax law mainly in line with standards derived from the relevant EU directives.


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General Tax Law compatibility of Polish legislation with the provisions of the EC Treaty, especially the ones devoted to four freedoms.

Tax liabilities

Tax proceedings


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Tax Liability compatibility of Polish legislation with the provisions of the EC Treaty, especially the ones devoted to four freedoms.

Tax Liability is a taxpayer’s obligation to pay tax for the benefit of the State Treasury or commune (gmina)


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TAX LIABILITY compatibility of Polish legislation with the provisions of the EC Treaty, especially the ones devoted to four freedoms.

Art. 21 GTL

Tax liability arises on the day:

  • the event with which a tax statute associates the arisal of such liability occurs (tax liability arises ex lege),

  • a tax authority’s decision determining the amount of such liability is served (tax liability arises by administrative decision)



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  • Self-assesment return shall be the tax to be paid

  • The taxpayer is required to report the basis of assesment, to calculate the tax due and to pay the tax


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VAT return sales and other details and calculates his/her tax liability

  • VAT payable on outputs

  • VAT recoverable on inputs

  • net amount VAT due to or from the authorities


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  • Joint return - return sales and other details and calculates his/her tax liabilityfiled jointly by both spouses


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  • The Constitutional Tribunal in its judgment of 4th of May 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.


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  • Information and calculation return 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.

  • Information return


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Information and calculation return 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.

  • facts, events,

  • taxpayer’s choices,

  • calculation of the tax,

  • informations about taxpayer.


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  • Tax return - declaration of knowledge 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.


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  • Taxpayer has the right to correct a tax return 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.

  • This right is suspended for the duration of tax proceedings


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  • Art. 293 GTL 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them.

  • Individual data contained in tax returns and other documents filed by taxpayers are covered by fiscal confidentiality


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  • The whole Section VII of the GTL deals with the 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them. fiscal confidentiality(fiscal secret). The following issues are regulated there :

  • the scope of tax secret,

  • the subjects under duty to observe secrecy,

  • the access to the tax information in an ongoing tax proceedings,

  • the way of storing of certain data,

  • the rules for passing information on taxpayers to other parts of the tax administration, courts, prosecutor etc.,

  • the passing of the tax information to the tax authorities of other states (Section VIIa),


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  • The right 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them. of privacy is literally expressed in the Constitution of the Polish Republic.

  • Article 47 : ”Everyone has a right to the legal protection of his private life...”.


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  • A 2004 (sygn. akt K 8/03) found Article 6 sec. 2 of Personal Income Tax Act incompatible with the constitutional principle of democratic state of law and principle of care and protection by State over marriage and family in that part in which it prohibits the joint taxation of spouses after a death of one of them. rticle 51 having broader purportis connected with this regulation. It provides that : ”Nobody can be obliged on other than statutory basis to disclose information concerning himself” (passage 1).


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Evidence may have the form of (in particular): taxpayer is obliged to keep tax books (accounting books) and submit declarations.

  • Tax books

  • Tax returns

  • Testimony of witness

  • Expert opinions

  • Materials and information gathered as a result of inspections


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  • During tax control tax authorities have in particular the right to:

  • Access premises of the taxpayer (e.g. land,office, appartment – in circumstances mentioned by law)

  • Require books and other documents connected with the control proceeding,

  • Gather materials connected with the scope of the control,

  • Secure evidence gathered during control,


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Part III of Finance

Tax on goods and servicesPolish value added tax


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During the period of the of Finance

so-called real socialism there were two turnover taxes in Poland: turnover tax on the entities of nationalised economy and turnover tax on the entities of non-nationalised economy. They existed until 1993.



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During the works on this tax, European solutions were taken into account to a great extent, however its construction differed greatly from the European standards.


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The into account to Act of 11th March 2004 on Tax on Goods and Services:section I general provisions, II scope of taxation, III taxpayers, IV tax liability, V place of supply, VI taxable amount, VII tax on imported goods, VIII tax rates, IX deduction and refund of tax, partial deduction, X registration, returns and summary information, payment of tax, XI documentation, XII special procedures, XIII amendments to provisions in force, transitory and final provisions.


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The taxable transactions cover: into account to

Supply of goods for consideration and supply of services for consideration on the territory of Poland.

Export of goods.

Import of goods.

Intracommunity acquisition of goods for consideration on the territory of Poland.

Intracommunity supply of goods.



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The supply of services is any performance for an individual, legal entity and entity having no legal personality, which does not constitute a supply of goods.


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In connection with the accession to the EU and the introduction of notions of „intracommunity supply” and „intracommunity acquisition”, the notions of „import” and „export” have different meaning than so far. Today they refer only to sale and purchase of goods to or fromoutside the EU.


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Tax introduction of notions of „intracommunity supply” and „intracommunity acquisition”, the notions of „import” and „export” have different meaning than so far. Today they refer only to sale and purchase of goods to or frompayers include legal entities, entities with no legal personality and individuals that independently carry out economic activities, regardless of the aim or results of these activities.


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The introduction of notions of „intracommunity supply” and „intracommunity acquisition”, the notions of „import” and „export” have different meaning than so far. Today they refer only to sale and purchase of goods to or fromeconomic activities comprise all activities of producers, traders and persons supplying services, including mining and agricultural activities, activities of the professions, also when the activity was performed only once but in circumstances suggesting the intention to perform this activity on a continuous basis. The exploitation of tangible or intangible property for the purpose of obtaining income, performed on a continuous basis, is also considered an economic activity.


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Tax liability arises at the moment of delivery of goods or performance of services. However, if delivery of goods or performance of services should be confirmed by an invoice, tax liability arises at the moment of issuance of the invoice, no later thought than 7 days after the goods were delivered or the services were performed.


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Small taxpayer (taxpayer, whose value of sale did not exceed during the last tax year amount equal to 800 000 Euros) may choose the tax accountingmethod according to which tax liability arises when the whole or part of the payment is effected, no later however than on the 90th day from the delivery of goods or performance of services.


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The place of supply is in the case of: during the last tax year amount equal to 800 000 Euro

goods dispatched or transported – the place where the goods are at the time when dispatch or transport to the person to whom they are supplied begins,

goods which are installed or assembled – the place where the goods are installed or assembled (simple activities which make it possible for the installed or assembled goods to function in accordance with their nature, are not considered to be installation or assembly),

goods not dispatched or transported – the place where the goods are when the supply takes place,

supply of goods to the ship, airplanes or trains during the part of passenger transport effected at the territory of the Community - the place where the passenger transport began.


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In the case of during the last tax year amount equal to 800 000 Eurothe following services:

in the field of culture, art, sport, science, education or entertainment,

ancillary transport activities such as loading, unloading, handling and similar activities,

valuation of movable tangible property,

work on movable tangible property,

the place of supply of services is the place where those services are physically carried out.


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The taxable base in the tax on goods and services is the turnover. The turnover is amount due from sales minus the tax due.


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Taxable base in case of import is customs value plus customs duty due. However, if the subject of import are goods on which excise duty is levied, the taxable base is customs value plus the customs duty due and excise duty.


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The basic rate duty due. However, if the subject of import are goods on which excise duty is levied, the taxable base is customs value plus the customs dutof the tax on goods and services is 22%. The law indicates when rates of 7 %, 3% and 0 % apply.


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Reduced rate of 7% applies to goods and services of special social importance (e.g. foodstuffs, books, newspapers, some health-care products, services connected with agriculture and forestry).


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Reduced rate of 3 % (applicable until 30 social importance (e.g. foodstuffs, books, newspapers, some health-care products, services connected with agriculture and forestryth April 2008) applies to agricultural products and unprocessed food products (e.g. products of meat industry with the exception of meat preserves, poultry products, fishery products with the exception of tinned fish food, milk, honey, products of field and meadow cultivation, products of animal farms).


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0 % rate is applied to export, intracommunity supply of goods and to some other activities.


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„In so far as the goods and services are used for the purposes of taxable transactions, the taxpayer shall be entitled to reduce the amount of the output tax by the amount of the input tax...”


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As a rule, the right to reduce the output tax by the amount of the input tax arises for the period in which the taxpayer received an invoice or a customs document.


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If in any accounting period the amount of input tax, exceeds the amount of output tax, taxpayeris entitled to deduct the difference from output tax for subsequent periods or to have a refund transferred to his bank account.


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There is no reduction of the output tax by the input tax in casethe taxpayer purchases inter alia: goods and services, if the amounts paid for them are not considered costs for the income tax purposes, engine fuels for passenger cars, gastronomy services and services of providing accommodation.


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Part IV case

Personal Income Tax



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Income tax is generally levied at progressive rates on the aggregate income from all sources after making deductions.


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The taxable income from each source is as a rule the difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose of earning income, retaining or assuring the source of income.


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Certain difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose kinds of income are taxed separately at flat rates.


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S difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose ources of income covered by the PITA:

income from dependent services, including employment and pension income,

income from independent services,

income from business,

income from particular agricultural sectors,

income from immovable property,

income from tenancy and lease,

income from investments and property rights (investment income),

income from the sale of immovable property, property rights and movables,

other income.


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Taxpayer difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose is considered to be a Polish resident in a given year for income tax purposes if at least one of the following conditions is met:

(1)

his centre of vital interests is in Poland or

(2)

he stays in the territory of Poland for more than 183 days.


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Partnerships are not taxable entities difference between the sum of receipts (both in cash and in kind) and related expenses incurred for the purpose .

Partners are taxed individually on their share of the profits.


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Polish residents are taxed on their worldwide income. Non-residents are taxed only on income derived from Polish sources.


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The list of exempt income is extensive and includes, Non-residents are taxed only on income derived from Polish sources. inter alia:

several types of socialdistributions, indemnities received in respect of property and personal insurance, scholarships, game and lottery winnings (in some cases up to a certain limit).


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Business income is defined as income from non-agricultural business activities. In principle, income from agricultural activities is not subject to tax under the PITA.


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Business income is calculated as the difference between receipts and deductible costs. Expenses incurred in order to generate taxable income, or to retain or assure sources of taxable income are in general deductible, unless the law provides otherwise.



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Income from employment is categorized as income from dependent services, together with pensions and income from membership in cooperatives.

Employment income is taxable on a cash basis, i.e. it becomes taxable at the moment the payment is received or put at the taxpayer's disposal.

It is aggregated with income from other sources and is subject to income tax at the general progressive rates.


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Benefits in kind (valued on the basis of market prices of comparable goods or services) are subject to tax in the same way as salary payments obtained in cash.


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Pensions are treated as income from dependent services and are taxable at the moment of payment or when they are put at the taxpayer's disposal. The general progressive rates apply.


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Pensions derived from certain voluntary private pension plans, however, are exempt (contributions to these plans are not deductible for income tax purposes).


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Employment income is calculated as the difference between gross income and standard deductions as provided for by the law.


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Employees' social security contributions are deductible for tax purposes. Contributions paid by the employer on behalf of an employee are not taxable in the hands of the employee.

Contributions to voluntary private pensions plans which are paid by employees, are not deductible for individual income tax purposes.


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Polish-source interest is not aggregated with income from other sources; it is subject to a final withholding tax.


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Polish-source dividends are not aggregated with income from other sources; they are subject to a final withholding tax.


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Income from royalties is taxable under the general rules at the progressive rates. In certain cases, 50% of earned income is deductible as an expense.


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Losses from one source of income may not be set off against profits from another source of income. Losses may be carried forward for 5 years; up to 50% of the loss may be set off in each year. However, the loss carry-forward rule does not apply to losses from the sale of real estate.


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There is a personal allowance of PLN 3,013.36, which is the annual income threshold not triggering individual income tax.


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The cost of Internet access at the taxpayer's premises is deductible up to PLN 760 per annum.  


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In general, spouses are taxed separately on their income. However, spouses in a community property marriage, who are resident taxpayers, may select to file a joint tax return, provided that they were married during the entire tax year (also if one of the spouses died during the tax year) and do not earn income subject to a flat income tax rate (except for rental income).


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Tax is assessed in the name of both spouses and is equal to twice the amount of tax computed with respect to half of the spouses' aggregate income.


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Withholding taxes apply to income from various sources, including employment and certain income from personal services.


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RATES including employment and certain income from personal services.

Taxable Tax

Income (PLN)

(PLN)

up to 43.405 19% minus 572,54

43.405 – 85.528 7.674,41 plus 30% of amount exceeding 43.405

over 85.528 20.311,31 plus 40% of amount exceeding 85.528


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P including employment and certain income from personal services.art V

Corporate Income Tax


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Corporate Income Tax Act of 15 February 1992 including employment and certain income from personal services.


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Corporate income is taxed at the company level and the distributed profits are taxed again by way of withholding when distributed to the shareholders. For resident corporate shareholders, the tax so withheld is credited against their corporate income tax liability.If the withholding tax cannot be fully credited, the credit may be carried forward indefinitely.


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Taxpayers: joint-stock companies, limited liability companies, state enterprises and cooperatives, units without legal personality, tax capital groups.


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Companies "under formation" are also considered taxable persons if they commence economic activities before they become fully registered.



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In general, partnerships are not taxable persons. Partners are taxed individually on their share of the profits, either under CITA provisions (corporate partners) or under PITA provisions (individual partners).


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A company is resident in Poland for tax purposes if it has its legal seat or management office in Poland. Consequently, a company is regarded as a Polish resident if it is either incorporated in Poland or managed in Poland.


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Resident companies are subject to tax on their worldwide income, while non-residents are taxable only on income earned in Poland.


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The tax year correspond income, while non-residents are taxable only on income earned in Poland.s to the calendar year. However, taxpayers may opt for another period of 12 consecutive months as the tax year.


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Taxable income is the difference between gross income and deductible costs, as allocated to the tax year.



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The accounting profits for tax purposes.CIT exempts certain types of income from income tax:

income received by taxpayers from governments of foreign countries, international organizations or international financial institutions, including the funds of EU and NATO programmes for research and technical developments, deriving from non-returnable foreign aid funds granted on the basis of a unilateral declaration or agreements concluded with these countries, organizations or institutions by the Council of Ministers of the Republic of Poland, the competent minister or government agencies (Art. 17.1.23 CITA),

income derived by charitable organizations and used for their charitable purposes (Art. 17.1. 6c) CITA) and

income derived by cooperatives and companies whose statutory activity is a scientific, technical research or educational activity.


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Costs incurred for the purpose of generating income or retaining or protecting sources of income constitute deductible costs, unless otherwise provided by law.


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Dividends paid to a company's shareholders are not treated as a cost and are not deductible for income tax purposes.


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Interest accrued and paid is deductible (if incurred for the purpose of generating income), while interest accrued but not actually paid is not deductible.


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Poland has thin capitalization rules and therefore the deductibility of interest can be limited.


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Under certain conditions, donations made to public organizations registered in Poland or another EEA country (EU Member States, Iceland, Liechtenstein and Norway) as well as donations for religious purposes are deductible from taxable income up to a maximum of 10% of the income.


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Non-deductible expenditures: organizations registered in Poland or another EEA country (EU Member States, Iceland, Liechtenstein and Norway) as well as donations for religious purposes are deductible from taxable income up to a maximum of 10% of the income.

expenses incurred on purchasing or producing fixed assets or intangibles (deductible through depreciation and amortization deductions),

expenses incurred on purchasing land or perpetual usufruct rights to land (they can be deductible upon sale; see, however, for taxation of capital gains),

repayments of loans,

tax fines, penalties and indemnities,

interest on additional capital contributions, on dividends and other corporate distributions, and

representation expenses including costs of restaurant services, purchase of foodstuffs and drinks, including alcohols.


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Losses may be carried forward and set off against income over a period of 5 years. Up to 50% of the loss may be set off in each year. Loss carry-back is not allowed.


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From 1 January 2004 the corporate income tax rate is 19%. over a period of 5 years. Up to 50% of the loss may be set off in each year. Loss carry-back is not allowed.


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Generally, dividends and other income from profit sharing of a resident company received from another resident company are subject to a 19% withholding tax. The dividend income can be exempt from withholding tax where the dividend recipient holds at least 15% of shares in the dividend payer's share capital for a minimum of 2 years (10% from 2009 onward).


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Corporate income tax is assessed in the form of self-assessment by the taxpayer. Taxpayers must calculate the amount of tax due, pay monthly advances, file an annual tax return and pay the final tax.


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The tax authorities have the right to verify the amount of calculated tax and may issue a decision correcting the amount of tax declared. A tax control and an assessment procedure take place before the decision is issued by the tax authorities.


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