The regulations which limited the abolition relief resulted in the fact that from January 1, 2021, Polish tax residents who generate income in countries with which, under the agreements of Treaties for the avoidance of double taxation, the method of proportional deduction is applied, will pay higher personal income tax (PIT).
The changes concern, inter alia Art. 27g of the PIT Act, according to which the abolition relief is available to all taxpayers, however with the note, that the amount deducted from personal income tax may not exceed 1 360 PLN. In practice, this means that anyone who earns more than 30 000 PLN will be obliged to pay tax in Poland in the amount of 12% and after exceeding 120 000 PLN 32%.
Tax explanations regarding the rules for applying for the abolition relief
The draft provisions of the amendments to the PIT Act, which are part of the Polish Deal, do not change the limit of abolition relief, despite the changes in the tax scale.
The purpose of the document is to present the correct application of the abolition relief in the tax settlement of natural persons earning income abroad.
The Ministry of Finance explains
- Abolition relief should be applied in the annual income statement without the possibility of applying at the moment of calculation of monthly advances, although the taxpayer may apply for it under art. 22 par. 2a of the Tax Ordinance, in a situation where it provides that its annual tax liability will be significantly reduced as a result of applying the abolition relief; (presenting the method of calculating the abolition relief)
- How to understand and calculate income obtained outside the land territory of countries (no limitation of the abolition relief).
The changes in the tax relief differentiate the taxation of income depending on the place where the income was obtained. Polish tax residents working for example, in Germany, France, The Czech Republic will be able to apply the method of exemption with progression to avoid double taxation. On the other hand, those working in Austria, the United Kingdom, the Netherlands, Slovakia, Belgium, Ireland and Greece will be taxed on the income obtained in these countries in Poland and will pay extra tax according to the tax scale (after exceeding the amount to which the abolition relief no longer applies).
Due to the relatively new regulations, Polish tax residents working or planning to work abroad should make a deep analysis of the regulations.