The draft bill introducing changes to the personal income tax law which is intended, among other things, to limit the so-called 'the abolition tax relief' was adopted by the Sejm and submitted to the Senate. This change may provide a significant increase in taxation of the income received by individuals working outside Poland
Abolition tax relief
The abolition tax relief was introduced to the Polish tax law in 2008 as a method of equalizing the tax situation of people working in different countries and applying various methods of avoiding double taxation.
How does the relief work?
The relief is applied to the Polish tax residents receiving income from abroad and to which applies the tax credit method.
The right to the tax relief shall apply to the Polish tax residents who obtain income from employment relationship, personal activity and business activity.
The tax abolition relief leads to the situation where income obtained outside Poland is fully exempt from taxation in Poland, and its amount may only have a certain impact on the tax rate paid on the Polish sourced income (just like the exemption with progression method).
As a result, the foreign income must only be declared in the annual tax return, without the obligation to pay the additional tax on it.
On 29 October 20202 the draft bill introducing changes to the personal income tax law which is to severely limit the application of the abolition tax relief was submitted to the Senate.
The effect of such changes will be a significant increase in taxation for the Polish tax residents who obtain income outside Poland.
Pursuant to the provisions of the amendment to the PIT law, the application of the tax relief will be limited to an amount not exceeding PLN 1,360. In fact, it means the liquidation of the abolition tax relief.
The amendment also provides that the relief will not apply to persons performing work or services outside of the country's land territory (e.g. sailors). This is a fundamental change compared to the original version of the draft.
Limitation of the tax abolition relief vs. MLI convention
Poland has ratified the MLI convention, under which the method of avoiding double taxation is changed to the tax credit method in many double tax treaties that Poland has concluded with other countries. Hence, the abolition tax relief could have a broader use than before the ratification of MLI.
What does it mean for me?
If the tax relief will be limited to an amount of PLN 1360, more people working abroad may potentially have to prove and pay tax also in Poland.
It is advisable to check which countries have ratified the MLI Convention changing the method of avoiding double taxation. These changes may affect income taxation, for example from countries such as the United Kingdom, Austria, Ireland, the United Arab Emirates, Russia, the Netherlands, Denmark, Norway, Iceland, Japan, Belgium, Malta, Ukraine, Cyprus, Portugal.