No one is surprised anymore that someone is working outside our country. Better wages - and often working conditions - make it an alternative that helps keep the household budget at a decent level. Some people have made the decision to leave with their entire family, while others only work abroad on a seasonal basis. Although working abroad is certainly not easy for everyone - those working abroad have an additional problem. Of a tax nature. Abolition relief, or rather its reduction in 2021, has led to many people working abroad not wanting to be tax resident in Poland.
In today's article, I will cover this topic, explaining the basic concepts at the outset before moving on to more specific issues. From this article you will learn:
- What is abolition relief?
- What is tax residence and tax residency?
- What has changed from January 2021 regarding the settlement of income earned abroad?
- Is it possible to avoid taxation in Poland on foreign income?
I invite you to read this entry.
Abolition relief
As the name already suggests, abolition relief is a type of tax credit. Its purpose is to avoid double taxation when the taxpayer obtained income in a country other than Poland. Importantly, it is only possible to take advantage of this allowance when income is obtained in a country for which the applicable method of avoiding double taxation is the proportional deduction method. I will not go into the tax details here, but it is still worth noting that the relief applies to income derived in particular from:
- employment contracts,
- business activities,
- personally exercised activities and
- copyright.
What else is important, abolition relief applies to persons for whom Poland is the centre of life or economic interests and who have been residing in Poland for more than 183 days. Thus, they are residents of the Republic of Poland.
Amendment to the PIT Act from 01.01.2021
There was a lot of confusion around the abatement allowance when it was significantly reduced following an amendment to the PIT Act in January this year. From 2021 onwards, it has been limited to an income amount of PLN 1360. This means, more or less, that above this amount taxpayers will have to pay taxes without applying this relief. However, the entry into force of the new regulations does not affect the tax settled in 2021, but only in the following year. The reduction of the relief will therefore only be felt in April 2022 when we settle our income for 2021.
Residence and tax residence
As I mentioned earlier, abolition relief applies to taxpayers who are tax residents in Poland. What does this actually mean and how does it translate into practice?
In a nutshell, a country that recognises us as a tax resident has the right to require us to pay tax on income earned outside its borders as well. I mentioned this at the beginning of this post, but I will repeat it again. According to the regulations, persons are considered to be tax residents in Poland if:
- reside in the territory of the Republic of Poland for more than 183 days in a tax year, or
- have a centre of personal or economic interest (centre of vital interests) in Poland.
Therefore, if we receive income abroad and we are tax residents in Poland, regardless of whether our foreign employer has withheld tax from our wages - we still have to enter all receipts in our annual return in Poland and we will be obliged to pay tax on them as well.
Abolition relief - is it possible to avoid taxation in Poland on foreign income?
In this respect, the position of the tax authorities is of considerable importance. Therefore, at this point, it is worth referring to the content of one of the interpretations of the director of the National Fiscal Information (No. 0112-KDIL2-1.4011.928.2020.2.MKA). Although it mainly addressed the interests of taxpayers earning income in the UK, it also translates into other foreign countries where Poles earn income and may settle it in Poland using the abolition relief. In the wording of the interpretation, the director of the KIS confirmed that taxpayers earning income abroad should pay taxes where they reside with their families and where they have a house where they live.
However, we should remember that the positions of tax authorities do not always coincide. Nevertheless, the interpretation presented above shows that Poles who have moved outside the country permanently should not be afraid of having to pay taxes in Poland. Unfortunately, this does not apply to those taxpayers who work outside the country seasonally and qualify as tax residents in Poland.
