Taxation System in Poland

Poland is an EU country that is bordered by the likes of Ukraine, Belarus, Germany, Russia, Slovakia, and the Czech Republic. Without an argument, this is a perfect location to do business. You can enjoy easy markets and abundant resources for your business. To add to the convenience, the Polish government introduced friendly tax schemes. These are beneficial to both business and the general livelihood of the Polish people. Continue reading to learn more.

The Polish taxation system

The Polish tax system has been shaped by the adoption of liberal economic policies and processes in compliance with the EU legislations. These taxes are levied from income, wealth, expenditure and other factors. However, an individual’s ability to pay tax is determined by their income source and residence status for taxation purposes. The taxes are levied by both the provincial and central governments. Tax collected by the central government includes:

• Corporate tax

• Income tax

• Value-added tax (VAT)

• Special consumption tax

• Social security contributions

• Civil law transactions tax

•  Financial services and capital tax

• Customs and retail sales tax

• Inheritance and gift tax

The local government is then responsible for the collection of the following:

• Agricultural tax

• Forestry tax

• Real estate tax

• Motor vehicle tax

Residents and Non-residents

Residents

Where residents are employed and contracted by a Polish company and working in Poland. The employer withholds income tax levied at progressive rates ranging from 17 to 32 percent. 32% is applied when an employee’s salary exceeds a certain threshold. The employer is then required to pay the withheld tax to the tax office. Some individuals work in Poland for a foreign company. The employee does not withhold tax but the individuals themselves are required to pay their taxes directly. Also, there are certain provisions made for married taxpayers.

Non-residents

The same applies to foreigners working in Poland, the employer withholds progressive tax between 17 to 32 percent that is then paid to the tax office. Additionally, when non-residents work for a foreign company it is the responsibility of individuals to pay the tax directly and not the employer. For non-residents that receive specific types of income like personal service contracts, commissions, management contracts or directors fees, they are subject to a 20% flat-rate tax. 

Also, a flat-rate tax of 19% is levied on certain classes of investment income such as dividends, interest and gains on the sale of shares. While capital gains are subject to a flat-rate tax of 19 percent.

Measures taken to improve the tax system

Poland as a country has managed to improve its revenue without pushing the burden on the citizens. The government has found ways to close loopholes in the tax system and improve tax compliance which has allowed Poland to increase tax without increasing tax levels. In 2017, tax revenue increased to 33.9% from 32.4% recorded in 2014 of the country’s Gross Domestic Product (GDP). VAT is the country’s biggest revenue source accounting for up to 40% of the country’s revenue. The country has launched several legislative measures to ensure tax compliance and collection which include:

Split payment mechanism :- whereby a buyer pays VAT directly into the supplier’s VAT bank account. This ensures that VAT related liabilities are paid since the supplier has limited access to the account.

Standard Audit File-Tax (SAF-T) :- This system was introduced in 2018 and requires organisations to send a monthly report to the tax office through a new IT system. This helps to monitor the companies so that they do not break the law.

Improvement tax morality :- which is the willingness of taxpayers to pay their social contributions and taxes. This has been encouraged by charging fairly reasonable taxes and the use of an incentive or reward system e.g. tax relief for those paying all their taxes.

Decrease of activity in the shadow economy :- to combat corruption and fight fraud, authorities and society have managed to insist on accountability and transparency.

Benefits of the Poland tax system

Improving taxation and integration into the formal economy has led to improvements in many other areas. The increase in revenue has lead to:

Expansion of safety nets - these are provisions made mainly towards public works, school nutrition and supplemental food for women, infants and children. Tax revenue also helps to assist families when natural disasters, economic shock and other crises occur.

Human capital development - this is shown by the improvement of education, healthcare and many other basic services.

Climate change resilience - introduction of programmes that focus more on resilience, climate change and productive capacity.

Many other initiatives have been done and are not only limited to the above. Improving taxation enforcement and tax collection is not easy but Poland has managed to generate revenue aimed towards programs that significantly improve the lives of citizens.