Taxation of individuals

Polish tax residents pay PIT on their worldwide income. Non-residents are subject to Polish PIT on their Polish-sourced income only.

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General PIT rules provide for the rates shown below:

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- from 0 to 10,000 PLN 12% of the base less the amount decreasing tax (PLN 3,600)

- over 120,000 PLN 10,800 + 32% excess over PLN 120,000.

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The tax-free amount is set at PLN 30,000. This means that taxpayers earning less than PLN 30,000 per year will be exempt from paying tax. 

In the case of income exceeding PLN 120,000, the tax is PLN 10,800 + 32% of the excess over PLN 120,000. The decreasing tax amount is already included in the above sum of PLN 10,800.

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Taxation of income from business activity

Individuals running business activities (as sole traders or as partners in partnerships) can, instead of being subject to the tax scale, opt for a flat 19% income tax rate, lump-sum tax, or the so-called 'tax card'**, subject to certain conditions.

** Please note that the ‘tax card’ was liquidated as of 1 January 2022 as a method of tax settlement, and only taxpayers who settled in the form of a tax card in 2021 are still able to use it; however, if they resign from this option, they will not be able to return to the tax card in the following years.

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Taxation of capital gains

Capital gains (including dividend and interest income) are taxed at a flat rate of 19%. The tax-free amount does not apply to this income.

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Taxation of private rental income

As of 2023, the only acceptable form of taxation for private rental income is lump sum taxation (8.5% rate for revenues below PLN 100,000 per year and 12.5% on the surplus over PLN 100,000).

This means that total private rental income will be taxed without the right to deduct costs of earning income (e.g. maintenance costs, utilities). However, if the taxpayer settles the rental as part of a business activity, the taxpayer can still use the general rules, flat tax or lump sum rental settlement.

From 2023 spouses may benefit from a preference when settling private rental income by applying a higher 12.5% lump sum tax rate after exceeding the limit of PLN 200.000,00 (before 2023 year the limit was PLN 100.000,00 for the sum of income of both spouses), regardless of whether they settle this income separately or decide to tax it entirely by one of them.

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Special rules for non-residents

Specified types of income, if gained by non-residents, are subject to special treatment. Namely, they are taxed at a flat rate of 20% calculated on revenue (cost deductions are not allowed) unless a double tax treaty (DTT) between Poland and the individual’s country of residence provides otherwise. These types of earnings include the following:

• Revenue from copyrights and other intellectual property (IP), such as trademarks, patents, and designs (including revenue from sale of the rights in question).

• Income from transfer of technology and know-how.

• Remuneration for leasing industrial, commercial, or scientific equipment.

• Income from independent work in the fields of art, literature, science, education, journalism, and sport (including income from participation in artistic, scientific, and cultural competitions).

• Income from work commissioned by national or local authorities or administrative bodies, courts, prosecutors.

• Income received as fees for membership in boards of directors, supervisory boards, committees, and other decision-making bodies of legal entities.

• Income from rendering personal services based on the agreement with a natural person or other entity as long as these services are not rendered within the scope of independent business activity (i.e. they are not offered to the public).

• Income received from activities performed personally under management or similar contracts.

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Social Contribution  

In Poland, social security consists of:

• pension insurance

• disability insurance

• accident insurance

• labour fund, and

• sickness insurance.

The Polish social security system covers people economically active, like employees or self-employed people. Social insurance may be mandatory or voluntary.

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Employees and employers: General rules

Both the employer and the employee are obligated to contribute to the Polish social security system. Apart from paying its own share, the employer is obligated to withhold the employee‘s share of the social security contributions and remit them to the Social Security Authorities (ZUS). In both cases, the relevant payments shall be made monthly.

As of 1 April 2015, the employer pays total contributions in a range of 19.21% to 22.41% of the employee’s gross salary (the employer’s contribution rate includes an accident insurance element that varies according to the number of employees insured and the business sector). The contribution rate for the employee is 13.71% of gross salary. The social security shares payable by the employer and the employee are tax-deductible items in their respective PIT settlements.

Part of the above rates apply to salaries below the cap of PLN 208,050 in 2023. The cap is changing every year. After exceeding this cap, the salary is subject to a contribution rate of 3.22% to 6.41% payable by the employer and 2.45% payable by the employee.

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Social security for mobile employees

The social security position in Poland of mobile employees depends on whether:

• European Union (EU) coordination regulations can be applied

• bilateral totalisation agreement regulations should be applied, and finally

• whether the international transfer is made to or from a third country with whom Poland does not have any international agreements, in which case only Polish domestic regulations will be applicable.

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Social security contributions of self-employed

As a rule, self-employed persons pay social security contributions in a lump sum, regardless of their actual income. The base for social security contributions, thus the amount of contributions, depends on the forecast average monthly wage for a given year (i.e. calculation basis amounts to 60% of the forecast average monthly wage).

Self-employed persons whose income in the previous year did not exceed PLN 120,000 may pay contributions from the income obtained in the previous year (provided that they meet additional criteria).

There is also a relief for starting a business. Individuals under self-employment do not have to pay social security for the first six months of their activity. For the next 24 months, they can pay so-called 'preferential contributions' that are significantly lower than normal ones.

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Health insurance

Employees, board members, and proxies

The monthly contribution rate for health insurance is 9% of the assessment base. In the case of obligatory participation, the assessment base is equal to the individual's gross income decreased by the amount of the employee’s part of social security contributions. The health insurance assessment base is not tax deductible for taxpayers reconciling their income with the tax scale, thus the 9% of contribution rate for health insurance is financed from the employee’s net income.

Please note that there is no cap on the health insurance contributions’ assessment base.

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Entrepreneurs

Also, from 2022, the method of calculating the health insurance contributions for entrepreneurs has changed. Currently, the rules for paying the health insurance contributions depend on the method of taxation of business activity and are as follows:

• 4.9% of income for sole proprietorships taxed at flat rate (19%).

• 9% of income for sole proprietorships taxed according to the tax scale (12% and 32%). However, the health insurance contribution cannot be lower than PLN 314.10 per month (value for 2023), PLN 381.78 (value for the period January-June 2024) and PLN 387.00 (value for the period July-December 2024). Please note that there is no amount of the maximum contribution indicated.

• A specific contribution depending on the amount of annual revenues for sole proprietorships taxed with a lump sum on recorded revenues - values for 2023, i.e.:

  • for revenue up to PLN 60,000: PLN 376.16 per month.

  • for revenue between PLN 60,000 and PLN 300,000: PLN 626.93 per month.

  • for revenue exceeding PLN 300,000: PLN 1,128.48 per month.

Additionally, as a result of the changes introduced on 1 July 2022, entrepreneurs can deduct health insurance contributions under modified rules.

According to the changes, such possibility will be provided for entrepreneurs who tax their income (revenues) differently than according to the tax scale, i.e:

• a flat rate tax,

• a lump sum on registered revenue, or

• a tax card.

However, the amount of the deduction is to be limited, depending on the chosen form of taxation:

• Up to PLN 10,200 (value for 2023) and 11,600 (value for 2024) of deduction from income (or inclusion in tax deductible costs) for sole proprietorships taxed at flat rate (19%).

• Up to 50% of health insurance contributions for those entrepreneurs paying the lump-sum tax (deduction from the tax base).

• Up to 19% of health insurance contribution paid for those entrepreneurs using the tax card (deduction from tax).

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Taxation of legal persons

Polish corporate income tax is, in general, due on income of legal persons, limited partnerships and limited joint-stock partnerships, as well as general partnerships - if it has any partner not being a natural person and does not submit information on shareholders (in other cases general partnerships are tax transparent).

Polish tax residents are subject to tax on their worldwide income, unless there is an applicable double tax treaty (DTT) in place exempting the foreign-sourced income from taxation in Poland. Non-residents are taxed only on their Polish-sourced income. DTTs may result in specific income being not taxable in Poland, irrespective of its source.

The standard CIT rate is 19%.

The reduced CIT rate of 9% can be applied to income, other than capital gains, if the taxpayer:

• is a small taxpayer (i.e. taxpayer whose value of sales revenue, including the amount of VAT due, did not exceed the amount corresponding to the PLN equivalent of EUR 2 million in the previous fiscal year) or

• started its business activity, provided the establishment of the company was not a result of transformation or merger (in the first tax year).

The lower rate does not apply to tax capital groups nor companies created as a result of certain restructuring operations (mergers, contribution of a going concern, etc.).

Revenues resulting from the receipt of dividends, interest and royalties are subject to special CIT withholding rates - 20% on interest and royalties (paid to non-residents), and 19% on dividends or other payments from participation in the profits of legal persons (paid to both residents and non-residents).

Income or loss is qualified to one of two baskets: sourced from capital transactions (‘capital gains’) and from other income/loss sources (also referred to as income/loss from ‘operational activities’). 

There is no limitation on the percentage of foreign participation in Polish resident companies. Such entities are subject to the general CIT rules. The same rules apply to branches of foreign companies.

Certain entities are explicitly excluded from the group of taxpayers under the CIT law (e.g. Treasury, National Bank of Poland). Polish and EU/EEA-based investment funds are also exempted on the grounds of such provisions. 

What is more, family foundations (introduced to the Polish legal system as of 22 May 2023), are exempt from CIT on the ongoing, permitted (statutory) activities. CIT liability arises only at the time of transfer of the benefit to the beneficiary (at 15% CIT rate). This solution is similar to the one used in the Estonian CIT mechanism.

Minimum income tax

Minimum income tax is a new tax obligation that is applicable to taxpayers declaring tax losses or negligible income (≤ 2% of revenue).

The regulations were initially introduced as of 1 January 2022. However, upon a postponement, the minimum tax is applicable from 1 January 2024, and the first payment will occur in 2025.

The minimum income tax rate is 10%. 

The tax base is calculated as a sum of the following:

• 5% of operational revenues (other than from capital gains), plus

• ’excessive‘ debt financing costs paid to related entities (generally debt financing costs exceeding 30% of the so-called ‘tax EBITDA’), plus

• costs of intangible services or royalties paid to related entities exceeding PLN 3 million plus 5% of the so-called ‘tax EBITDA’.

It is possible to choose an alternative method of determining the tax base amounting to 3% of the value of revenues other than from capital gains in the tax year.

The provisions provide for a list of reductions from the tax base (e.g. the amounts of donations or R&D relief, for prototypes and robotisation, SEZ/PIZ revenue, the value of expenses included in the tax year as deductible costs resulting from the acquisition, production, or improvement of fixed assets, including through depreciation).

The minimum income tax does not apply, inter alia, to financial enterprises, start-ups, entities whose profitability in any of three prior years was no less than 2%, and taxpayers who recorded over 30% decrease in revenues.

The amount of the minimum tax paid for a given tax year may be deducted from the due CIT calculated using the traditional method for the consecutive three tax years immediately following the year for which the taxpayer has paid the minimum income tax.

Value Added Tax

Polish VAT applies to the following activities:

• Supplies of goods and services within the territory of Poland.

• Exports of goods outside the territory of the European Union.

• Imports of goods from countries that do not belong to the European Union.

• Intra-Community acquisitions of goods (imports from countries belonging to the European Union).

• Intra-Community supplies of goods (exports to the countries belonging to the European Union).

VAT rates

The VAT rates are 23% (standard rate), 8%, 5%, 0%, and exemption.

The standard 23% VAT rate generally applies to the supply of all goods and services, except for those that are covered by special VAT provisions that provide other rates or treatments.

Supplies covered by a reduced rate of 8% include, among others, supplies of pharmaceutical products and passenger transport services and also supply of goods for the Social Housing Programme (no greater than 150 square meters).

Supplies covered by a reduced rate of 5% include books and journals, unprocessed food, and basic food.

Zero-rated activities include, among others, exports of goods to countries outside the European Union.

VAT-exempt supplies include, among others, certain financial, insurance, and educational services.

In the period from 1 February 2022 to 31 December 2023, so as to counteract the effects of the inflation in Poland, the tax rate for basic food products, other than those classified according to the Polish Classification of Goods and Services under food and beverage serving services, has been reduced to 0%. It is expected that the reduced VAT rate will apply until 30 June 2024.

Basic calculation rules

In general, the VAT due equals the VAT on outputs decreased by the VAT on inputs (in other words, input VAT is deducted from output VAT). Input VAT may be deducted from output VAT when a business (with a VAT payer status) receives an invoice for goods or services purchased. Input VAT may not be deducted unless a purchased supply is linked to the VATable activities. Furthermore, the deductibility of input VAT is restricted by the VAT law with respect to the purchase of certain goods and services. In addition, subject to numerous conditions, output VAT may be reduced when receivables, resulting from VATable sales, become uncollectible.

'White list' of VAT payers

The amendment of the Polish VAT Act introduced regulations on the electronic database of taxpayers registered for VAT purposes in Poland. 

As of 1 September 2019, the electronic database of taxpayers (‘white list’) was introduced. The list contains data on the VAT status of the entities that were, in particular:

• not registered for VAT purposes (or were de-registered), and

• registered as VAT payers (i.e. data on active and exempt VAT taxpayers), including entities whose registration as VAT payers has been restored.

The list is extended by the additional data (e.g. bank accounts numbers indicated in the tax forms filed to the tax office).

Obligation to settle expenses with use of bank accounts mentioned in the white list is applicable to transactions exceeding a value of PLN 15,000. Expenses paid via transfer to a bank account not included in the list cannot be treated as a tax-deductible cost. Additionally, payments made to accounts not included in the list result in joint and several liability for VAT obligations of the supplier, in the amount equal to the VAT proportionally attributable to the transaction. 

The above sanctions do not apply if the taxpayer notifies the head of the tax office about the payment made to an account other than the one included in the list within seven days from the date of the payment being ordered. During the period of the epidemic threat and the epidemic state announced in connection with COVID-19, the deadline for submitting the notification about the payment made to an account other than the one included in the list is extended to 14 days from the date of the payment being ordered.

Split payment system in VAT settlements

As of 1 July 2018, split payment mechanism in B2B transactions has been introduced into the Polish VAT Law, replacing reverse charge for selected groups of goods and services. It assumes that the bank transfer is divided into net amount and VAT; the VAT amount is credited to a dedicated bank account of the seller. Cash deposited in a VAT account can be used only to pay VAT liability or other tax liabilities (CIT, PIT, excise duty, customs duty) and social security (ZUS) contributions or to pay the VAT shown on acquisition invoices to the supplier’s VAT account. Cash in a VAT account may only be sourced from VAT payments made by acquirers or refunds of VAT from tax authorities.

A mandatory split payment mechanism for B2B supplies of selected goods and services entered into force on 1 November 2019. Obligatory split payment applies only to transactions between taxpayers, which are subject to VAT in Poland, documented by invoices in which the total amount of receivables exceeds PLN 15,000 (gross). Foreign entities settling transactions by bank transfers, subject to VAT in Poland, are required to open a bank account in Poland.

The obligatory split payment mechanism applies to 150 product and service groups determined in accordance with the Polish Classification of Products and Services (PKWiU) of 2008.

In general, the following groups of goods and services can be distinguished:

• Steel products, precious metals, non-ferrous metals.

• Waste, scrap, recyclable materials.

• Electronics, specifically processors, smartphones, phones, tablets, netbooks, laptops, game consoles, inks, toners, hard drives.

• Fuels for cars, fuel and lubricating oils.

• Greenhouse gas emission rights.

• Building and constructions services.

• Coal.

• Sale of car and motorcycle parts.

VAT refunds

The Polish VAT law allows direct refunds when input VAT (available for deduction) exceeds output VAT.

A Polish business may also be entitled to the VAT refund owed by another country under certain circumstances. Likewise, a foreign business having a seat or fixed place of business for VAT purposes outside of Poland may be, in most cases, entitled to the refund of Polish VAT. If the respective countries belong to the European Union, the procedure is substantially simplified due to the EU Directive, which provides favourable rules for businesses based in EU countries that are seeking VAT refunds in other EU countries (i.e. electronic VAT refunds are possible).

International services

The treatment of international services largely depends on the place of supply since it is determinative of whether particular services are subject to the Polish VAT. The Polish VAT applies only to those services that are supplied within Poland.

Reporting rules

Generally, the VAT reporting period is one month; quarterly reconciliation of VAT may apply to small taxpayers. VAT should be reported and reconciled by the 25th day of the month following the VAT reporting period. Legislation obligates the VAT-registered taxpayers (except those exempt from VAT) to keep computerised records of all data required to fulfil reporting obligations. Documents must be filed in the Standard Audit File for Tax (SAF-T) format, both in the case of an inspection and with respect to the VAT records.

From 1 October 2020, entrepreneurs are required to submit VAT SAF-T files in the extended version, including information from the VAT return (V7M, VDEK). 

With the introduction of VDEK, the obligation to submit VAT returns in their previous form was abolished.