From 2023, the only permissible form of taxation of rental income and lease obtained outside the scope of business activity (so-called private rental) is a lump sum tax on recorded revenue.
The mandatory lump sum tax excludes the possibility of applying the tax scale to rental income and deducting the costs of depreciation of residential premises. The lump sum tax rates on rental income have not changed and in 2024 they continue to be 8.5% of income up to PLN 100,000 and 12.5% of the surplus of income over PLN 100,000. More information on the settlement of rental can be found in the article: “Important changes in the taxation of private and business rentals in 2024 and 2025”.
Limiting the choice of the form of private rental taxation and mandatory lump sum taxation of this income is very important for people earning from renting out real estates (especially if they incur high costs related to the subject of the rental).
The settlement of rental income obtained abroad will depend on the country in which the property is located and, consequently, what method of avoiding double taxation (i.e. exemption with progression or proportional deduction) will be applied.
At this point, it is worth mentioning about the changes resulting from the ratification by subsequent countries of the MLI Convention (Multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting), thanks to which in the case of subsequent jurisdictions, the basic method of avoiding double taxation is, in principle, the usually less favourable method of proportional deduction.
How do lump sum taxpayers settle foreign rental income?
If a Polish tax resident earns rental income in Poland taxed at a lump sum rate on recorded revenue and additionally rents real estate located abroad (in a country for which the exemption with progression method applies), then the foreign rental income (note: only if, together with the rental income from Poland, it exceeds in total the amount of PLN 100,000) will affect the determination of the effective rate for calculating tax on Polish income subject to lump sum taxation on recorded revenues. The tax on Polish income thus determined using the calculated lump sum tax rate will be higher than the tax calculated on the same Polish revenues using the 8.5% rate. The resulting difference constitutes an addition to the amount of lump sum which should be reported in the box no. 225 (PIT-28 form for 2023). Additionally, in the PIT-28 tax return, in the box no. 208 (PIT-28 form for 2023), the amount of income obtained from rental abroad, which had an impact on the calculation of the above percentage rate, should be entered. However, if the total sum of revenue obtained from the rental of real estates located in Poland and abroad (in a country in relation to which the exemption with progression method applies) does not exceed PLN 100,000, then the lump sum tax rate applicable to Polish revenues will be equal to 8.5% and, taking into account the literal wording of the regulations, in this situation rental income obtained abroad should not be reported in the PIT-28 declaration.
However, if a Polish tax resident earns rental income in a country for which the proportional deduction method applies, he or she must report foreign income in the PIT-28 declaration and pay tax on it. The tax paid abroad, which is deductible from the amount of lump sum tax, should be reported in the box no. 226 of the PIT-28 declaration (form for 2023).
How do the regulations introduced by the Polish Deal affect the settlement of revenue from foreign rental?
People who earn revenue from rental and lease obtained outside of business activity (so-called private rental) will settle it in the form of a lump sum without the right to use the tax scale from 2023. If such revenue is obtained in countries for which the exemption with progression method applies, foreign rental will generate additional tax costs in Poland only if the total sum of rental revenue obtained in Poland and abroad exceeds PLN 100,000.
However, if rental income is earned in countries for which the proportional deduction method should be applied, taxpayers are obliged to determine a lump sum tax on revenue of 8.5% or 12.5% (without the prior possibility of recognizing the costs of obtaining income or reducing income by depreciation costs) and appropriately deduct the tax paid abroad from the lump sum tax thus calculated.
The above may lead to situations in which the taxpayer, as a Polish tax resident, will be obliged to incur lump sum tax costs in Poland, even if in fact he or she has little rental income (due to the high costs of obtaining income) and does not even have to pay tax on such income abroad.
In our opinion, the current regulations significantly limit the range of available solutions for taxing rental income.
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