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POLAND
Taxation of Nonresident Entities
Corporate Assessments and Payments
Personal Assessments and Payments
Doing business in Poland presents a host of challenges for would-be investors: What is the
most appropriate form of investment? What sources of financing are available? How can
business keep pace with Poland's fast-changing legal and tax environment? How can
property titles be established? What potential environmental liabilities are attached to a
proposed investment?
Deloitte & Touche, the Deloitte Touche Tohmatsu International member firm in Poland,
was created to help investors answer those questions and to anticipate and thrive on
change. With 6 partners and a staff of more than 100, Deloitte & Touche serves national
clients and inbound investors from offices in Warsaw, Kraków, Gdansk, and Szczecin.
Auditing Services: Charles Dalch
International Services: Leslaw A. Paga
Management Consulting Services: Jan Maciejewicz
Tax Services: Andrzej Kolin ski
Telephone: +48 2 661 53 00
Telecopier: +48 2 661 53 50
Forms of Business Organization. Principal forms of business include the limited liability
company, joint stock company, civil code partnership, and general partnership. Foreign
participation can only be effected by way of a limited liability company or a joint stock
company. Foreigners may set up a new company or acquire shares, up to 100%, in an
existing company.
While limited liability companies and joint stock companies are legal entities liable for
corporate income tax, civil code partnerships and general partnerships are not legal
entities, and therefore, participants are taxed separately on their individual shares.
Establishing a Business. To establish a company, the parties must draw up an agreement in
the form of a notarial deed and have it registered. In some cases, a special permit to
establish a company is required from the minister of ownership transformations.
Exchange Controls. As of 1 January 1995 the new Foreign Exchange Law is in force,
which has further extended the convertibility of the Polish currency. Foreign exchange
banks may hold foreign currency; everyone else is obliged to conduct all transactions in
new zlotych (PLN), the new Polish currency (with some exceptions). The Polish currency
was denominated as of 1 January 1995. One new zloty (PLN 1) equals 10,000 old zlotych
(PLZ 10,000) and is divided into 100 groszy.
Joint ventures, other companies established in Poland, and representative offices of foreign
companies in Poland must hold their basic bank accounts in new zlotych, and all
receivables in hard currency have to be changed into new zlotych immediately upon
receipt. Subsequently, they may obtain hard currency from foreign exchange banks to pay
for services and imports necessary for their activities. These banks must sell convertible
currencies to companies to enable the companies to meet their obligations. A foreign
company is entitled to purchase foreign currency to repatriate its share of profits from its
subsidiary. A foreign company may also purchase foreign currency to repatriate the
proceeds of realizing its investment. Under the new Foreign Exchange Law, foreign
companies may under certain conditions open bank accounts in Poland in Polish currency
to conduct trade with Polish companies.
Any entity obliged to keep accounting or tax records of its income and expenses must
possess a bank account, and transactions with other entities must be made through that
account if the transactions' value exceeds certain limits. An entity with more than one
account must appoint one as its major account. The tax office must be informed of details of
all of an entity's bank accounts. Severe penalties may be imposed if any of these rules is
violated.
Local Participation or Management Requirements. In general, Poland does not require
local participation in companies. In a few restricted areas such as broadcasting and
telecommunications, limits are placed on foreign participation. Foreign investors may
establish entities that are wholly foreign owned. Local management requirements do not
exist.
A resident legal entity is subject to corporate income tax on its income from all sources. An
entity is regarded as resident if its legal seat or place of management is in Poland.
Corporate Tax Rates. Corporate income tax is levied on Polish legal entities at the rate of
40%.
Taxable Income. Taxable income is determined from the net profit shown on the
company's balance sheet, although some expenditure is not allowed for tax purposes. The
net receipts from all taxable sources are aggregated for income tax purposes. The income
or loss from each source is the difference between the sum of receipts from the source, both
in cash and in kind, and allowable expenses.
Dividends, interest, and royalty income. Dividends, interest, and royalties paid abroad
are subject to withholding tax.
Inventory valuation. Inventories must be valued at their real value. Real value is not
defined in Polish law but cannot be lower than the purchase or manufacturing cost. Several
methods may be used to value inventory, but the method chosen must be applied
consistently. Acceptable methods are the standard cost; weighted average; first-in, first-out;
and last-in, first-out methods.
Foreign-source income. As a general rule, income derived from sources located abroad is
subject to Polish corporate income tax. The foreign tax can be deducted from corporate
income tax due in Poland.
Capital gains. Gains on sales of fixed assets are generally taxable as ordinary income, and
related expenditure and capital losses on sales of fixed assets are deductible. Gains on
sales of securities are sometimes exempt.
Exempt income. Income is taxable unless the law specifies otherwise. Income so specified
includes the following:
Deductions. Expenses incurred in earning the related receipts are generally deductible
from those receipts.
Depreciation. The Council of Ministers has determined fixed rates of depreciation for all
taxpayers. The rates range from 1.5% to 50%. The straight-line method is generally used,
although accelerated depreciation may be used in some cases, as may the declining-balance
method. Sample rates are up to 4% for buildings, between 8.5% and 20% for most
machinery and equipment, and between 20% and 50% for intangible assets.
As of 1 January 1995, depreciation rates for accounting purposes can be established at
will.
Tax incentives. If certain criteria are met, investment incentives are available in the form
of accelerated depreciation, for example, for companies meeting certain profitability
requirements, for certain exporters, in the case of new investments over ECU 2 million, and
for investments in areas with high unemployment.
Reserves and provisions. Under certain conditions, companies may reserve funds for
doubtful debts.
Other expenses. Loan interest is deductible. No deduction may be claimed for dividends
paid (including disguised distributions of profit), gifts, or fines and penalties (excluding
those stipulated in a contract). In addition, no deductions may be claimed for contributions
made to funds other than those required by law (such as the social fund), additional
insurance costs to cover high-risk and poor work conditions, and costs incurred on
advertising and representation that are above a percentage of turnover provided in law.
Taxpayers may deduct donations of up to 10% (in some cases up to 15%) of income made
to scientific, religious, and educational institutions.
Tax Treatment of Losses. Losses may be carried forward and set off against income in
the next three years. The loss available is divided into three equal amounts for this
purpose.
Taxation of Nonresident Entities
A company whose legal seat and place of management is abroad is subject to corporate
income tax on income earned in Poland.
Permanent establishments operating in Poland may be taxed at 40% on a fixed percentage
of their turnover if their taxable income cannot otherwise be determined: 5% on foreign
trade activities, 10% on construction and assembly activities, 60% on commissions, and
20% on other business activities.
A foreign concern may set up a representative office in Poland, but such an office is not
permitted to conduct normal business activities.
Polish tax law contains no provisions governing companies in a group relationship. Thin
capitalization rules do not exist. The Polish tax authorities may use certain general rules to
prevent transfer-pricing abuse.
Corporate Assessments and Payments
The tax year is generally the calendar year unless the company gives notice to the tax
authorities for a different one.
Companies must submit a corporate income tax declaration and pay monthly installments of
tax due. Corporate income tax is due on the twentieth of the month following the month in
which the income was earned.
Companies must file an annual profits tax return within three months of the fiscal year-end,
and any outstanding tax liabilities must be settled at that time. A final return must be
submitted within nine months of the fiscal year-end but not later than ten days after
completion of the annual audit, if the audit is earlier.
Late payments of tax result in interest charges.
Taxpayers are obliged to give the tax authorities access to their accounts and other documents. Failure to do so may lead to assessment on an estimated basis. Financial and custodial penalties are imposed for tax offenses.
All kinds of income derived by individuals are subject to a general personal income tax.
Residents are taxed on their worldwide income; nonresidents are taxed on income from
Polish sources, irrespective of where the remuneration is paid.
An individual is normally taxed as a resident in Poland if he or she has a residence or
customary place of abode in the country or stays in Poland for more than 183 days in a tax
year, unless a treaty for the avoidance of double taxation provides otherwise. Individuals
present in Poland for more than 183 days but on a temporary basis are taxed as
nonresidents if they are employed by a foreign small-business enterprise, a company with
foreign participation, or the Polish representative office of a foreign enterprise or bank.
Treatment of Families. A husband and wife are taxed separately on their incomes, unless
they elect to be taxed jointly. The income of a minor child is added to that of the parent,
with exceptions. These rules do not apply to persons who are taxed as nonresidents.
Personal Income Tax Rates. The personal income tax scale is progressive, and the rates
for 1995 are between 21% and 45%. Tax computed at the 21% rate is reduced by a credit
of PLN 165.60.
An individual taxpayer with a very low business turnover may in certain cases opt to pay
income tax at a flat rate on the turnover without the right to deduct expenses. The
recordkeeping requirements for such taxpayers are also less strict. The tax rates vary from
3% to 8.5% depending on the type of activity. Other groups of individual taxpayers, mostly
craftspeople, pay a lump-sum tax depending on the number of inhabitants of the location in
which they exercise their professions. However, the flat-rate income tax and lump-sum tax
rarely apply to foreign individuals.
Taxable Income. Income tax is levied on the following types of income:
Income from dependent services. Income from dependent services largely consists of
employment income, including benefits in kind. Pension income is also included.
Income from business activities and independent services. Income from entrepreneurial
or professional activities is taxable either as income from business activities or as income
from independent services. Directors' remuneration is included in income for independent
services. Business receipts and capital gains from the sale of business assets are taxable as
income from business activities.
Income from capital. Income from capital consists of taxable investment income such as
dividends, interest, and royalties. Such income is usually subject to withholding tax at flat
rates.
Exempt income. Exempt income includes the following:
Deductions and Reliefs. Taxpayers may deduct from taxable income donations to
scientific, religious, and educational institutions, up to 10% (in certain cases, 15%) of total
income. They may also deduct social security contributions and certain expenses related to
the purchase, construction, or renovation of a dwelling (subject to restrictions).
Personal Assessments and Payments
The tax year for individuals is the calendar year. Income tax is paid in advance every
month and adjusted at the end of the year. Interest is charged on late payments. Final returns
must be filed by 30 April of the year following the tax year.
Tax on employment income is usually withheld by the employer.
Basic Rates. Withholding tax is effectively levied on dividend, interest, and royalty
payments to nonresidents, including dividend payments made by a joint venture. For
residents, only dividends are subject to withholding tax. The normal rate is 20%. In the
case of resident companies, this tax can be credited against corporate income tax. For
nonresidents and resident individuals, the tax is usually final.
Rates Under Double Tax Treaties. Most double tax agreements follow the Organization
for Economic Cooperation and Development (OECD) model. The applicability of the
treaty with the former Yugoslavia is unclear.
Poland was also a party to the agreements concluded by the Council of Mutual Economic
Assistance (COMECON), which in some cases are still being applied in practice until they
can be replaced. Signatories of the COMECON agreements included Bulgaria, the former
Czechoslovakia, Hungary, Mongolia, Romania, and the former Soviet Union. Hungary and
some states formed out of the former Soviet Union -- particularly the Baltic states -- no
longer apply the COMECON treaties. In addition, Poland has concluded separate treaties
with Belarus, Russia, and Ukraine.
Unilateral Relief. Income derived from foreign sources is exempt from income tax if a
similar tax is imposed in the foreign country and the principle of reciprocity is observed in
relation to similar income derived from Polish sources.
Value Added Tax. A value added tax (VAT) system, similar to European Union systems,
took effect in Poland on 5 July 1993, replacing the prior turnover tax. All persons
conducting business activities in Poland are potentially subject to the tax. Nonresidents are
liable if they carry out taxable transactions in Poland. Taxpayers are subject to VAT if their
turnover exceeds PLN 80,000. Other taxpayers may choose whether to charge VAT (with
exceptions).
VAT is levied on the consideration (excluding the tax itself) for the goods supplied or the
services rendered. It is also levied on imported goods, using the value at importation,
including customs duty, border tax, and any excise tax.
The general rate of VAT is 22%. A reduced rate of 7% applies to specified goods,
including food products, fertilizers, medicines, and various products for children. A zero
rate applies to exports of goods and some services.
Imports may be exempt from VAT if they are also exempt from customs duties. Other
exempt goods include unprocessed agricultural products.
Real Property Tax. Real property tax is chargeable to individuals and all economic
entities, including state enterprises and joint ventures. Real estate subject to the tax
includes land and buildings not used in connection with agriculture.
The tax rates vary according to the type of property being charged. The maximum rates are:
Agricultural Tax. Persons (including joint ventures) engaged in normal farming activities
are subject to agricultural tax. The amount of tax due is determined by a formula that takes
into account the number of hectares farmed and factors such as the class of cropland and the
tax district in which the land is situated.
Forestry Tax. Individuals and legal entities owning forests or occupying state-owned
forests must pay forestry tax. Similar to agricultural tax, this tax is calculated based on a
formula that takes into account the number of hectares owned or occupied, the class of land,
and the species of trees found in the forest, as well as the price of timber.
Social Security Contributions. All employers must make social security contributions for
their employees in Poland (whether the employees are Polish or foreign) at the rate of
45%. They must make a further 3% contribution to the unemployment fund and 0.5% to a
special labor fund. Thus, the aggregate rate is 48.5%.
In practice, no social security contributions are paid for foreigners without a formal
employment relationship with a Polish company or representative office in Poland. Poland
has special social security arrangements with Belgium, France, and Germany.
Inheritance and Gift Tax. The recipient of an inheritance or gift is obliged to pay tax on
the net value of property (excluding debts) and money acquired. The rates vary according
to the relationship between the recipient and the deceased or donor. Close relatives, such
as spouses, children, parents, and siblings, are taxed at rates between 5% and 19%. More
distant relatives, such as nephews and nieces, are taxed at rates between 11% and 32%.
Other recipients are taxed at rates between 17% and 45%. Basic tax-free amounts are
allowed, based again on the relationship between the recipient and the deceased or donor.
Exemptions are available for household goods, farms, gifts and inheritances from abroad,
and dwellings.
Nonresidents are subject to this tax if property rights are transferred in Poland.
Stamp Duties. Stamp duties are levied on certain civil law transactions, such as transfers
of property. The rates are 2% for movable property, 5% for immovable property, and 2%
for other property rights. Stamp duties may be levied on other administrative acts and legal
processes as well, such as loans.
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