The PIT Act provides, among other things, an exemption from PIT for sailors' income and the possibility of using the so-called abolition relief. However, filing a correct tax return by a sailor is not simple, and the act contains some non-obvious traps.
Abolition relief limitation and sailors' income
The abolition relief is intended for taxpayers who are Polish tax residents and have earned income in a country for which the appropriate method of avoiding double taxation is the proportional deduction method. The application of the relief, in principle, should equalize the amount of tax due in Poland to the amount that would be due if the exclusion with progression method were applied. The effect of applying the abolition relief should therefore be the actual exclusion from taxation of income earned outside Poland.
However, Article 27g of the PIT Act defines limitations on the use of the relief, resulting in increased tax burdens for people working in countries where the proportional deduction method is applicable. The amount of relief for the income earned is limited to PLN 1,360.
This limitation does not apply to income earned outside the territorial land of countries - thus it does not cover sailors (as well as pilots, flight attendants, etc.). This means that sailors' foreign income is still effectively exempt from taxation in Poland, allowing them to avoid double taxation if the tax on the mentioned income has already been paid abroad.
No tax abroad means no right to relief
It is worth mentioning the general interpretation published in October 2019 by the Minister of Finance, Investments, and Development regarding the application of abolition relief to sailors' income earned from work on ships operated in international transport from a country with which Poland has not concluded a double taxation avoidance agreement.
In this interpretation, the Minister explained that a taxpayer who has earned income in a country with which no double taxation avoidance agreement has been concluded and no income tax has been paid abroad on this income is not entitled to use the abolition relief.
Tax exemption for sailors' income with a trap
Regardless of the possibility of using the abolition relief, the PIT Act also provides for the exemption from taxation of certain income earned by sailors.
According to Article 21(1)(23c) of the PIT Act in the version effective from October 30, 2024, the income of sailors who are citizens of European Union member states or states belonging to the European Economic Area, earned from work on sea-going ships flying the flag of a European Union member state or a state belonging to the European Economic Area, is exempt from taxation.
The exemption applies only to income obtained from work on seagoing ships used to transport cargo or passengers in international navigation for a period of 183 days in the tax year.
Between January 1, 2021, and October 30, 2024, this provision allowed for the exemption of the above-mentioned income regardless of the flag flown by the ship, if the ship on which they worked was a ship used to carry cargo or passengers on international navigation.
However, due to the lack of consent of the European Commission to apply the above provision, its application was suspended and in the absence of consent, the legislator decided to limit the scope of application of the provision only to work in excess of 183 days a year on seagoing vessels used to carry cargo or passengers in international navigation, which fly the flag of a Member State of the European Union or a country belonging to the European Economic Area.
Article 21 section 1 point 23c of the Personal Income Tax Act in its updated wording applies to sailors’ income earned after 31 December 2020.
Consequently, for the exemption to apply, it must be assumed that the service must be performed on a ship flying the flag of a European Union member state or a state belonging to the European Economic Area - regardless of the date the income was earned.
In practice, unfortunately, the application of this provision is limited, as the majority of Polish sailors work on offshore vessels or do not work more than 183 days on ships.
Who is affected by the dependence of the exemption on the flag state?
The limitation of income exemption from taxation is particularly significant for sailors earning income from work on ships flying the flag of countries such as Antigua and Barbuda, Bahamas, Barbados, or Liberia, which is a popular choice among German shipowners. Polish sailors working on ships flying the flag of these countries cannot apply for PIT exemption, nor can they use the abolition relief if there is no taxation abroad.
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