Worldwide Tax Summaries--POLAND（1999-2000）(part2)
Worldwide Tax Summaries--POLAND（1999-2000）(part2)
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Following the reform of the soCIAl security system, contributions are now borne by both the employer and the employee.
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 is 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 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.
Employee gross income/Employee gross income includes basic 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 this loss in three equal parts over the next three years from income derived from the same source.
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.
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 separately at the rate of 10% if the sale is not carried out within the scope of regular economic activity and occurs within from the end of the tax year in which the purchase of the property took place or, if a speCIAl tax relief was claimed, the sale occurs within ten years.
Income from the sale of objects (i.e., chattels) is taxed in the same way if the sale occurs within six months from the date of acquisition of the object.
Certain capital income is exempt from tax, including interest on savings deposits and demand accounts (except from bank accounts operated for business purposes) and interest on State Treasury bonds. Income from the sale of State Treasury bonds, stock of quoted companies and shares of companies formed to lease privatized property is exempt from income tax.
Interest income from the granting of a loan is taxed at 20%, except where the granting of loans is the object of regular economic activity.
Dividends joint stock companies and shares in profits of limited liability companies are distributed from the net after-tax profit of a company.
Dividends and these shares, as well as undistributable retained earnings, are not aggregated with income from other sources. This type of income is taxed at 20%.
Tax-exempt income/More than 40 types of income are ax exempt. The most important are as follows.
1. Monetary damages received on the basis of administrative law, civil law and other legal acts.
2. Receipts from property insurance and personal insurance claims.
3. Interest on savings and demand accounts (except for business accounts) and interest on State Treasury bonds.
4. Money won in legally registered games of chance and lotteries.
5. Income of individuals if that income derives from funds established by international finanCIAl institutions or from resources allocated by other countries on the basis of agreements concluded between the Council of Ministers) and those institutions or countries.
6. Cash equivalents provided to employees when they need to use their own tools, goods and equipment to perform work.
7. Reimbursement of an employee's costs for relocation to another place of employment and reimbursement for the costs of settling in the new place (up to 200% of the monthly salary due to the employee in the month of transfer).
8. Limited daily allowances and other amounts due to employees for the duration of business trips.
9. Additional pay granted to employees temporarily transferred to work away from home and other benefits granted according to the principles and limits outlined in the rules for state employees.
10. Limited value of accommodation provided by an employer for employees working away from their place of permanent residence.
11. Limited payments to employees who use their private cars for company business.
12. Income originating outside Polish territory if an agreement for the avoidance of double taxation signed by Poland and the foreign country provides for such exemptions.
Business deductions/There is a standard annual deduction for employees equal to 3% of the income ceiling of the first tax bracket (PLN888.72 for 1999). If an employee derives income from several sources, the sum of deductions in a given tax year cannot exceed 4.5% of the above amount. An individual doing independent work may claim various allowances, depending
on the type of activities performed.
Nonbusiness expenses/The employee's portion of soCIAl security
contributions is deductible from gross income before tax. Other expenses that may be deducted from gross income are housing expenses (subject to limitation), membership fees of organizations that the taxpayer must join and donations (for legal persons only, up to the limit of 10% or, in some cases, 15% of gross income).
Other major deductions include 19% of expenses incurred for private medical care, purchase of professional equipment and
education/self-training(subject to limitations). Additionally, health insurance contributions are tax deductible.
Personal allowances/For 1999 there is personal allowance of PLN394.80 for all taxpayers.
Investment relief for qualifying investment expenditure is available to individuals performing business activities in Poland in the form of a deduction from pretax profits for personal income tax purposes. The investment deduction is generally limited to 25% of the individual's taxable income in the year in which the investment is made. If in that year the proportion of revenue from exports exceeds 50% of total revenue
or if revenue from exports exceeds the equivalent of ?8 million, the taxpayer may deduct from taxable income investment expenditure up to 50% of this income.
Examples of qualifying investment expenditure include the following.
1. Purchase or self-production of assembly machinery and equipment.
2. Construction or extension of buildings.
3. Purchase of means of transport, with the exception of cars.
4. Purchase from the State Treasury of an enterprise or organized part of an enterprise's assets, with the exception of the purchase of land.
5. Purchase of licenses, patents or know-how.
If before the commencement of the business activity a taxpayer incurs investment expenditure not less than the equivalent of Э2 million, this expenditure may be deducted from taxable income in the tax year and in the three tax years following the end of the tax year in which activities commenced. This deduction will be limited to 25% of the taxable income of each of these years.
SpeCIAl investment reliefs are also available to businesses investing in regions with high structural unemployment.
A taxpayer's income originating abroad, if subject to Polish taxation (not exempt from taxation in Poland under an agreement for the avoidance of double taxation), is accumulated with income earned from work in Poland, and the tax is calculated on this sum according to the tax table. Income tax is then reduced by the amount of tax paid outside Poland. This tax credit may not exceed the tax calculated on total income multiplied by the
proportion of income arising outside Poland to total income (unless a relevant double tax treaty provides otherwise).
Social security taxes/Until the end of 1998 the employer was subject to the entire obligation for Polish social insurance. From January 1,1999, following the reform of the Polish social security system, the obligatory soCIAl security contribution has been divided between the employer and the employee.
Contributions to pensions and disability insurance are paid by employer and employee on total gross compensation until such cumulated compensation exceeds the contribution cap, which is set at 30 times the national average monthly salary estimated for a particular year (for 1999 the cap is set at PLN50,375.22-approximately $13,000).
When the individual's cumulative income reaches the cap limit,
contributions are no longer paid to pensions and disability insurance either by the employee or the employer. Contributions to sickness (employee) and accident insurance (employer) as well as the Labor Fund and Guaranteed Benefits Fund (employer) are paid without a cap limit on total gross salary.
The contribution rates are as follows.
CONTRIBUTION AMOUNT PAID BY
Pensions and disability insurance… 16.26% of total gross salary Employer
…………………………………………… (up to the cap)
…………………………………………… 16.26% of total gross salary Employee
…………………………………………… (up to the cap)
Sickness insurance…………………… 2.45% of total gross salary Employee
Accident insurance……………… 1.62% of total gross salary Employer
Labor Fund……………………………… 2.45% of total gross salary Employer
Guaranteed Benefits Fund…………… 0.08% of total gross salary Employer
The amount of the contribution paid by the individual is deductible from gross income before tax.
Foreign individuals engaged with a Polish entity under an employment contract are generally subject to security contributions, unless an exemption is provided under an applicable totalization agreement. However, according to the law there are some soCIAl security exemptions, including
those listed below.
1. Service contracts if the individual is already subject to mandatory soCIAl security contribution from another source.
2. Service contracts concluded for periods shorter than 14 days. There must be a period of at least 60 days between service contracts of 14 days or less with the same entity.
3. Management board fees.
4. Some benefits set out in the decree of the Minister of Labor and SoCIAl Policy of December 18,1998 concerning "detailed rules of setting the assessment base for pensions contributions."
Health insurance/Polish nationals who are subject to soCIAl security insurance are mandatorily subject to national health insurance;
alternatively, they can voluntarily participate in the state health insurance scheme. Foreign individuals are subject to obligatory health insurance only if they are subject to Polish soCIAl insurance and if they hold a permanent residency card or temporary residency card granted to them i