The so-called ‘Polish Deal’, in force since 1st January 2022,, introduced a significant change in the principles of taxation of income from rental and lease earned outside of economic activity (so-called ‘private rental’).
In 2022, taxpayers could apply lump-sum tax or continue taxation of rental income in the form of a tax scale - if such a method was used in previous years. However, from 2023, the only acceptable form of taxation of such revenues is a lump sum on recorded revenues - excluding the possibility of applying the tax scale to such revenues and the right to deduct the costs of depreciation of residential premises. Lump sum rates on rental income are not changed compared to 2021 and amounts to 8,5% on the revenue up to PLN 100,000and 12,5% of the surplus of revenues over PLN 100,000.
Limiting the choice of the form of private rental taxation and obligatory taxation of these revenues with a lump sum may turn out to be very important for people earning money on renting real estate (especially if they incur high costs related to the subject of the rental).
The settlement of rental income obtained abroad depends on the country in which the real estate is located and, consequently, which method of avoiding double taxation (i.e. exemption with progression or proportional deduction) is applicable.
At this point, it is worth mentioning the changes resulting from the ratification of the MLI (Multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting) by subsequent countries, thanks to which, in the case of subsequent jurisdictions, the basis method of avoiding double taxation becomes as a rule, the proportional deduction method is usually less favorable.
How do lump sum payers settle foreign rental?
If a Polish tax resident obtains rental income in Poland taxed with lump sum tax on recorded revenue and additionally rents real estate located abroad (in a country for which the exemption with progression method applies), foreign income does not affect the lump sum rate in Poland. A taxpayer is also not obliged to prove such income in PIT-28 submitted in Poland.
However, if a Polish tax resident obtains rental revenue in a country for which the pro-rata deduction method applies, a taxpayer must report the foreign revenue in the PIT-28 declaration and tax it. The tax paid abroad, which is deductible from the lump sum, should be shown in position no. 226 of PIT-28 form (for 2022).
How the regulations introduced by the Polish Deal affects the settlement of revenues from foreign rental?
People who obtain revenues from rental and lease obtained outside of economic activity (the so-called private rental), from 2023settle them in the form of a lump sum without the right to use the tax scale. If such income is obtained in countries for which the exemption with progression method applies, the rental, as a rule, does not generate additional tax costs in Poland.
If, on the other hand, rental revenue is obtained in countries for which the proportional deduction method is applicable, taxpayers will be required to establish a lump sum on revenues in the amount of 8,5% or 12,5% (without the possibility of recognizing tax deductible costs or reducing revenues by depreciation costs) and deduct the tax paid abroad from thecalculated lump sum.
The above may lead to situations in which the taxpayer, as a Polish tax resident, will be obliged to bear the costs of the lump sum tax in Poland, even if in reality they have little rental income (due to high tax deductible costs) and does not even have to pay tax on such tax income abroad.
Autorzy:
