The PIT Act allows to exempt from PIT tax incomes of seafarers and apply the so-called abolition relief. However, submitting a correct tax return by a seafarer is not easy, and the Act contains unobvious traps.
Sailors’ income in terms of limitation of the abolition relief
The abolition relief is intended for Polish tax residents, who have earned income in a country for which the method of proportional deduction (tax credit) is the appropriate method of avoiding double taxation. The application of the relief, as a rule, should equate the amount of tax due in Poland to that if the method of exclusion with progression had been applied. The application of the abolition relief should therefore result in exclusion from taxation of income earned outside Poland.
Art. 27g of the PIT Act, however, defines restrictions on the use of the relief, which result in an increase in the tax burden for persons working in countries for which the tax credit method is in force. In accordance with the Act, the application of the relief for income earned from January 1, 2021 is limited to PLN 1,360.
On the other hand, this restriction does not apply to seafarers. This means that seafarers' foreign income is still effectively exempt from taxation in Poland, which allows them to avoid double taxation in a situation where they have already paid tax on their income outside Poland.
No tax abroad means no right to relief
It is worth mentioning the general interpretation of the Minister of Finance, Investment and Development, published in October last year, on the application of an abolition relief to seafarers' income from work on ships operating in international transport from a country with which Poland has not concluded a double taxation agreement.
In this interpretation, the Minister explained that a taxpayer who had earned income in a country with which no double taxation treaty had been concluded and no income tax had been paid on that income abroad is not entitled to benefit from the abolition relief.
Income tax exemption for seafarers with a trap
Regardless of the possibility of taking advantage of the abolition relief, the PIT Act also provides for the exemption from taxation of certain income earned by seafarers.
According to the wording of art. 21 sec. 1 point 23c of the PIT Act in the version applicable from January 1, 2021, the income of seafarers who are citizens of the European Union or countries belonging to the European Economic Area, regardless of the flag of the ship under which they operate, are exempt from taxation.
Before January 1, 2021, this provision allowed for the exemption of income earned only by those seafarers who performed work on ships operating under the flag of the EU or EEA member state.
However, in accordance with the amending provision (i.e. Article 23(1) of the Act of November 28, 2020 amending the Personal Income Tax Act, the Corporate Income Tax Act, the Act on flat-rate income tax on certain income earned by natural persons and certain other acts), art. 21 sec. 1 point 23c of the PIT Act in its updated wording will apply to income earned after the European Commission has issued a positive decision on the compatibility of state aid with the internal market.
Since such a decision has not been issued, the version of the provision from before January 1, 2021 should be considered valid and the ship's flag should be taken into account when applying the exemption.
Who is affected by the amendments to the PIT law?
The extension of the tax income exemption is of particular importance for seafarers who receive income from work on ships flying the flag of countries with which Poland has not signed a double taxation agreement, such as Antigua and Barbuda, Argentina, Barbados, or willingly chosen by German shipowners - Liberia. Currently, Polish seafarers sailing on ships under the flag of the above-mentioned countries cannot apply the PIT exemption, and in the absence of taxation abroad, they cannot take advantage of the abolition relief.
Issuance of a positive decision by the European Commission will therefore be very beneficial, but one should not forget that the exemption in the amended version is still conditional, among others, on the number of working days on board in a given tax year and the type of vessel. Income from work on such vessels as, among others, platforms, cable boats or specialist vessels (e.g. research, seismic) will still not be exempt from PIT.