SIGNIFICANT DEVELOPMENTS
Following the reform of the social security system, contributions are now borne by both the employer and the employee.
The amended Act on personal income tax, which came into effect as of January 1, 2001, introduced several important changes to the rules on taxation of individuals. Primarily, several existing tax reliefs disappeared.
In addition, some unclear provisions were given more precise wording, and solutions governed by executive regulations have been included in the Act.
An important change in the tax treatment of individuals is the extension of the catalogue of activities performed personally to include “management services contracts and agreements of a similar nature.” The practical consequence of this change is that revenue from these sources will now be taxed at a progressive rate without the possibility to set off any
revenue-earning costs.
TERRITORIALITY AND RESIDENCE
An individual who is a resident of Poland or whose temporary stay in Poland is longer than 183 days in a given tax year is liable to tax on worldwide income, irrespective of the origin of the income. A nonresident who stays in Poland for less than 184 days in a given tax year is liable to tax only on income from work performed in the territory of Poland on the basis of a service agreement or an employment contract, irrespective of the place of payment or of other income arising in the territory of Poland.
Irrespective of the length of stay in Poland, a nonresident individual who has arrived in Poland for a temporary stay in order to take employment in a foreign small-business enterprise, a company established with foreign participation, or a branch or representative office of a foreign company or bank is liable to tax only on income from work performed in the territory of Poland on the basis of a service agreement or an employment contract, irrespective of where this is paid, and other income arising in the territory of Poland.
GROSS INCOME
Employee gross income/Employee gross income includes basis pay, overtime pay, supplemental pay, awards and bonuses, compensation for unused holiday or vacation time, all other monetary amounts, and benefits-in-kind, as well as all other services obtained without payment.
Income from each source is defined as the surplus generated in a tax year of revenue over the costs of obtaining that revenue. If, in a given tax year, losses from any source of income (with a few exceptions) exceed the taxpayer’s total income from all sources, the taxpayer has the right to carry forward each source’s loss by deducting it over the next five years from income derived from the same source. The amount of loss deducted in a given tax year cannot exceed 50% of the total loss incurred.
For individuals liable to Polish tax only on Polish-source income, earnings from some sources are taxed at a flat rate of 20%, unless a bilateral tax treaty between Poland and the individual’s country of residence states otherwise. These types of earnings are the following.
1. Earnings from copyrights and other intellectual property rights, such as trademarks, patents, and designs, including proceeds of sale.
2. Income from the transfer of technology.
3. Income received from another party for the use of industrial, commercial, or scientific equipment.
4. Income received from another party for information and expertise in the fields of industry, commerce, or science.
5. Income from work in the fields of art, literature, science, education, journalism, and athletic activities, including income from participation in artistic, scientific, and cultural competitions (independent work).
6. Income from work commissioned by national or local government authorities or administrative bodies or by the courts or the prosecutor’s office (in particular, that of expert witnesses in all types of legal and administrative proceedings) and income received as a fee for participation
in commissions established by local government bodies.
7. Income received as fees for membership on boards of directors, supervisory boards, committees, and other decision-making bodies of legal entities (income received for management board duties performed pursuant to a civil contract, i.e., a management services contract or other contracts of a similar nature) is excluded from such preferential tax treatment and
is taxed at progressive rates (see comments above).
8. Income from rendering personal services on the basis of a specific work contract or self-employment contract concluded with a legal entity, an entity without legal personality, or a business, as long as these services are not business services offered by the individual contractor to the public.
Capital gains and investment income/Income from the sale of real property is taxed separately at the rate of 10% if the sale is not carried out within the scope of regular economic activity and occurs within five years from
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