• Taxes
• Tax Allowances for Companies Utilising Waste Materials
• Tax Allowances for Protected Labour Companies
• Capital Allowances
• Double Taxation Treaties

All taxes in Poland are approved by Parliament. The Polish taxation system has been undergoing substantial changes in recent years aimed at creating a more transparent system and at conforming to taxation standards existing in market economy countries. Although Polish tax legislation itself is relatively straightforward, its application in practice can be difficult. In particular the law leaves some areas open to interpretation and it may happen that officials within the same tax district will come to two different conclusions as to the tax consequences of a particular set of circumstances. Moreover, some areas of tax legislation refer to concepts, which either lack a legal definition or have a different meaning from that adopted in other legislation.

Taxpayers should note that all taxes are payable monthly on account and that interest penalties in excess of 40% per annum apply to the late payment of tax.

The main taxes in Poland are:

• Corporate Income Tax (CIT). With the exception of partnerships having no legal personality, all legal persons and organisational units having a legal personality are subject to corporate income tax. The base of taxation is profit taken as surplus of income over the cost of acquiring it. In 2001 the rate of this tax equals 28%.  Moreover, the Act on Corporate Income Tax provides for a further reduction of the tax rate, establishing the future rates as follows: 28% in 2002, 24% in 2003 and 22% in 2004.

During the transformation process, Poland has been constantly reducing the State's involvement in the economy, which is clearly reflected in the reduction of the tax burden.

Corporate income tax does not apply to:

• revenues earned on agricultural activity, with the exception of income from special branches of agricultural production,

• revenue earned on forestry activities within the limits of the Forestry Act,

• revenue earned on activities, which cannot constitute the subject of a legally effective contract.

Corporate taxpayers having their seat or the location of their Board of Directors, within the territory of the Republic of Poland are liable to tax on the whole of their income, irrespective of the place where it has been earned. Taxpayers having neither a seat nor a Board of Directors within the territory of Poland are liable to tax only on income earned within the territory of the Republic of Poland.

Losses can be carried forward for up to five years, though no more than 50% of the loss can be written off in any year. There is no concept of the carry back of losses. Various tax reliefs, contained in the Act on Corporate Income Tax of 15 February 1992 (with later amendments) have been cancelled, however the provisions granting them still apply to investments that have been effected before 1 January 2000.

The Act very precisely enumerates expenditures that are not treated as costs. Furthermore, the last major revision of the CIT Act of November 1999 incorporated into it depreciation and amortisation issues, previously regulated in a Decree.

Transfer pricing: Companies and individuals entering into transactions with connected entities or individuals (both domestic and foreign) as well as with entities or individuals located in tax havens have to possess full transfer pricing documentation. Such documentation has to be made available within 7 days of request by a tax inspector. Profits assessed under a transfer pricing investigation are subject to penalty tax at 50% plus interest (currently 46% per annum). Connected entities and persons are defined as 5% or more direct or indirect ownership. Transfer pricing definitions follow the OECD guidelines.

• VAT (Tax on Goods and Services). This tax was introduced in July 1993, replacing turnover tax. The basic rate amounts to 22%. Apart from the basic rate there is a preferential rate of 7% applicable to sales of certain agricultural means of production (fertilisers, pesticides, agricultural machinery), goods for children, goods connected with health protection, construction materials and services and some other services such as transport (except taxi cabs), etc.

There is also a zero rate applicable to exports. However, services ordered from abroad but performed in Poland are subject to 22% VAT. Only services performed abroad are treated as exports and thus are subject to 0% rate. Moreover, some basic food products and social and cultural services are VAT-exempt. Examples include milk, eggs, fish, groceries, education and health services as well as postal services.

The VAT rate on unprocessed products is 3%. Normally, the principle of VAT liability on sales of agricultural products is that a farmer who is a non-VAT payer (who is subject to lump-sum payments), selling his products, beside the sales price will receive a lump-sum VAT refund from the buyer of these products. This refund will amount to 3% of the sum due for the sold products less the lump-sum tax return.

Companies and individuals must register for and charge VAT if their annual turnover exceeds PLN 39,800. VAT is chargeable on supplies of goods and services unless they are specifically relieved by way of exemption or zero rating. Just like in most European countries, VAT is refundable to foreign tourists leaving Poland and exporting products from Poland. Foreign tourists are eligible for VAT reimbursement for purchases exceeding PLN 200 (incl. VAT) only if the customs office confirms that the goods have left the Polish territory intact and no later than on the last day of the third month following the month the goods were purchased in.

VAT legislation causes the most problems to taxpayers particularly where goods and services are involved which are not adequately classified in the official register.

• Excise Duty. In addition to VAT some commodities are subject to excise duty. This applies to over 30 product groups, encompassing goods such as passenger cars, fire-arms used for hunting, fuels and lubricants, plastic packaging, salt, alcoholic beverages, tobacco products and certain consumer goods such as hi-fi equipment, video cameras, yachts and motor boats, perfumes, etc. Excise tax rate depends on the kind of goods, as well as whether the goods to which it is applied are produced locally, or imported. It is always higher in the case of imports and it ranges from 5% to as much as 1900%.

• Tax on Dividends. This tax applies to legal and natural persons, who are shareholders in companies. Income of holding companies coming from other Polish registered companies of the holding is exempted from this tax. The tax rate equals 15% unless agreements on avoiding double taxation state otherwise.

In order for a Polish payer to withhold tax at reduced rates set by a relevant Avoidance of Double Taxation Agreement, the recipient will have to provide the payer with a certificate of tax residence issued by the tax authorities of the recipient. The Certificate confirms that taxpayer, for tax purposes, has its seat in the country where the dividend is paid.

• Personal Income Tax (PIT): The tax is assessed on the income of natural persons, independently of the source of origin. The income tax scale is progressive. Husband and wife may be taxed separately or together dividing their combined income by two. There are some tax deductibles of which the most important are the purchase of a building plot and building a house. Altogether the Law on Personal Income Tax specifies more than one hundred types of income exempt from the personal income tax as well as various deductions from the tax base and from the tax.

• Inheritance and Gifts Tax. The base of taxation is the market value of goods and property rights acquired through inheritance, donation and prescription. The rate is progressive and its level depends on the character of relation between donor and recipient.

• Stamp duty on civil and legal proceedings: On 1 January 2001 a new law dated 9 September 2000 on Stamp Duty on Civil and Legal Proceedings came into force. A taxpayer who must pay this stamp duty, without being called to do so by tax authorities, is obliged to submit the relevant declaration, calculate and pay the stamp duty to the tax office or transfer it to its bank account, within 14 days from the date of the commencement of tax obligation.

• Stamp duty: On 1 of January 2001 a new law dated 9 September 2000 on Stamp Duty came into force. A taxpayer who must pay this stamp duty, without being called to do so by tax authorities, is obliged to submit the relevant declaration, calculate and pay the stamp duty to the tax office or transfer it to its bank account, within 14 days from the date of the commencement of tax obligation.
• Local Taxes. Local authorities are empowered to set the level of rates and the scope of reliefs in local taxes. Their rates, however, cannot exceed the maximum levels determined by the Parliament. Local taxes and fees include: real estate tax, dog tax, and fair tax
• Real Estate Tax. All real estate is subject to real estate tax within the limits defined in the decree of the Minister of Finance published every year. As specified, annual tax rates are determined by resolutions of the local government of communal level (gmina) and may be different in each administrative area.

A number of local authorities (Gmina) apply lower rates to new investments. However, the tax rates applied by local authorities cannot be lower than 50% of the maximum rates. The Ministry of Finance plans to replace this tax, which is related to the size of property, with a cadaster tax, which will be related to the property’s value.

TOP

TOP

. Protected labour companies are exempted from some tax liabilities, including VAT and non-tax budget liabilities that encompass payment to the National Labour Fund, the resources of which are designated for coping with unemployment. This exemption, however, does not apply to income tax, excise tax, customs duty and lottery tax.

TOP

. As of 1 January 2000 depreciation and amortisation rates as well as their application are governed by the Act on Corporate Income Tax of 15 February 1992 (with later amendments).

Taxpayers are free to treat as costs any expenditure up to PLN 3500. Current depreciation and amortisation rates are specified in Annex 1 to the Law of 9 June 2000 on Changing the Act on Corporate Income Tax. For certain categories of real estate and plant and machinery the reducing-balance method of depreciation may be applied, such that depreciation can be charged at a higher rate. These rates are calculated by multiplying the normal rate by a certain factor. The factors envisaged by the Act vary between 1.2 and 2.0.

On the other hand, it is also possible to reduce the listed depreciation and amortisation rates, however a reduction may not exceed 50%. There are 10 groups of depreciation and amortisation rates.

TOP

. Poland follows the model of the OECD convention in negotiating its tax treaties. As of May 2001 Poland has signed agreements on avoiding double taxation with 78 countries. These treaties are based on a reciprocity principle, they may actually reduce or eliminate various taxes. Poland has signed such agreement with India on 21 June 1989.

TOP