This country-specific Q&A provides an overview to Private Client laws and regulations that may occur in Poland.
Which factors bring an individual within the scope of tax on income and capital gains?
Residents are taxed on their worldwide income.
An individual is viewed as a Polish tax resident where he/she stays in Poland for more than 183 days during the tax year or if his/her centre of vital interest is in Poland. Each of the conditions is treated separately, i.e. meeting even only one of them is sufficient to become a Polish tax resident.
Non-residents are taxed on their Polish-source income only.
What are the taxes and rates of tax to which an individual is subject in respect of income and capital gains and, in relation to those taxes, when does the tax year start and end, and when must tax returns be submitted and tax paid?
Most individuals are subject to taxation at progressive rates of 17% (up to PLN 85,528 per annum) and 32% (surplus over PLN 85,528 per annum). Social security (approx. 14% financed by the employee and 18% financed by the employer) and healthcare (9% financed by the employee) contributions are based on the remuneration. Social security contributions are deductible from the income, whilst healthcare contributions are partly deductible from the tax.
However, certain individuals may be subject to taxation at a lump-sum regime or at linear 19% tax rate (self-employment and business activity). Specific rules of social security and healthcare contributions apply to them as well.
There are rules of taxation for controlled foreign companies (CFCs).
Rental income is subject to taxation at progressive rates of 17% and 32%, linear rate 19% or lump-sum taxes of 8.5% (up to PLN 100,000 per annum) and 12.5% (surplus over PLN 100,000 per annum).
Capital gains and gains derived from the disposal of financial instruments or real estate are taxed at 19%. Disposal of real estate not earlier than 5 years from the end of its acquisition year is tax exempt.
Individuals with annual income from certain sources exceeding PLN 1,000,000 are subject to an additional 4% tax on the surplus over PLN 1,000,000 per annum.
An exit tax of 19% on unrealized gains may apply when individual transfers assets outside Poland or changes tax residency.
A tax year is equal to a calendar year. Tax returns must be submitted by the end of April of the following year. Married couples and single parents may settle with preferential joint spouses’/single parent’s regimes.
Are withholding taxes relevant to individuals and, if so, how, in what circumstances and at what rates do they apply?
Employers are required to withhold tax and social security/healthcare contributions on employees’ remunerations.
Individuals who run a business are also required to withhold tax on behalf of non-residents on payments of dividends (19%), interest (20%), royalties (20%) and certain intangible services (such as advisory, accounting, legal, technical, advertising, management etc.: 20%).
Is there a wealth tax and, if so, which factors bring an individual within the scope of that tax, at what rate or rates is it charged, and when must tax returns be submitted and tax paid?
There is no wealth tax in Poland. However, as mentioned in point 2 – individuals whose annual income from certain sources exceeds PLN 1,000,000 are subject to an additional 4% tax on the surplus over PLN 1,000,000 per annum.
Is tax charged on death or on gifts by individuals and, if so, which factors cause the tax to apply, when must a tax return be submitted, and at what rate, by whom and when must the tax be paid?
Inheritance and donation tax rates depend on the tax group.
Tax groups are as follows:
1) Group I – spouses, descendants, ascendants, stepchildren, sons-in-law, daughters-in-law, siblings, stepfather, stepmother and in-laws,
2) Group II – descendants of siblings, siblings of parents, descendants and spouses of stepchildren, spouses of siblings and siblings of spouses, spouses of spouses’ siblings, spouses of other descendants;
3) Group III – other persons.
Tax rates are as follows:
Surplus in PLN:
308.30 and 5% from the surplus over 10,278
822.20 and 7% from the surplus over 20,556
718.50 and 9% from the surplus over 10,278
1,644.50 and 12% from the surplus over 20,556
1,233.40 and 16% from the surplus over 10,278
2,877.90 and 20% from the surplus over 20,556
Are tax reliefs available on gifts (either during the donor’s lifetime or on death) to a spouse, civil partner, or to any other relation, or of particular kinds of assets (eg business or agricultural assets), and how do any such reliefs apply?
There is a tax relief available for spouses, descendants, ascendants, stepchildren, siblings, stepfather and stepmother – if they notify the acquisition of inheritance or gift to the competent tax office within 6 months, then it is inheritance and donation tax exempt.
Do the tax laws encourage gifts (either during the donor’s lifetime or on death) to a charity, public foundation or similar entity, and how do the relevant tax rules apply?
Donations to qualified charities are tax deductible up to 6% of the annual taxable income per year.
How is real property situated in the jurisdiction taxed, in particular where it is owned by an individual who has no connection with the jurisdiction other than ownership of property there?
Property tax is levied on the owner of the land, building or structure. Its rate is imposed by local authorities.
Are taxes other than those described above imposed on individuals and, if so, how do they apply?
There is VAT (23%, in general) charged on goods and services.
Furthermore, there is a transaction tax on certain types of transactions (such as sales exempt from VAT, loans, establishment of companies or partnerships, etc.). Rates vary depending on the transaction type from 0.5% to 2%.
Moreover, there is a stamp duty on e.g. filing a power of attorney.
Is there an advantageous tax regime for individuals who have recently arrived in or are only partially connected with the jurisdiction?
What steps might an individual be advised to consider before establishing residence in (or becoming otherwise connected for tax purposes with) the jurisdiction?
The decision of becoming a tax resident in Poland should be carefully considered due to the potential consequences of exit tax payable on the loss of Polish tax residency status.
What are the main rules of succession, and what are the scope and effect of any rules of forced heirship?
Polish inheritance law is based on the principle of family succession. According to the Civil Code, the estate is inherited by the closest relatives of the testator in the following order:
testator’s descendants (children) and the surviving spouse, in equal parts, however the spouse’s part must not be less than 1/4 of the whole inheritance,
in the absence of descendants, the surviving spouse together with the testator’s parents – where the parts assigned to each parent equals 1/4 of the inheritance. If a parent does not survive the inheritance moment, the testator’s siblings inherit the part that would be assigned to the late parent, in equal parts,
in the absence of descendants and the surviving spouse, the testator’s parents inherit the whole inheritance in equal parts,
in the absence of descendants, parents, siblings and their descendants, the whole inheritance is assigned to the surviving spouse,
in the absence of descendants, the surviving spouse, parents, siblings and their descendants, the whole inheritance is assigned to the testator’s grandparents, in equal parts,
in the absence of the surviving spouse and the testator’s relatives, as mentioned above, the inheritance is assigned to those children of the testator’s spouse, whose both parents did not survive the inheritance moment, in equal parts,
in the absence of any of the relatives mentioned above, the whole inheritance is assigned to the administrative unit of the testator’s habitual residence, which for the purpose of inheritance proceedings is deemed to be an heir.
The part of inheritance to which the surviving spouse is entitled upon joint inheritance with other relatives, as mentioned above, equals half the inheritance.
Polish inheritance law provides for forced heirship rules, meaning that persons who will become heirs according to the binding regulations (descendants, parents and the surviving spouse) are entitled to a compulsory portion of the testator’s estate, if their rights are violated by the estate distribution made by the testator. Where a person entitled to the compulsory portion is permanently unfit for work or is a minor – the compulsory portion equals 2/3 of the inheritance to which he/she would be entitled upon inheritance in accordance with the Civil Code. In other cases, the compulsory portion equals half of such inheritance.
Is there a special regime for matrimonial property or the property of a civil partnership, and how does that regime affect succession?
In principle, under Polish family law, spouses are subject to statutory matrimonial property regime, unless otherwise agreed in a nuptial agreement. Under this statutory regime, all the assets acquired by one spouse or both spouses during the marriage are deemed to be jointly owned by them, specifically including earned income, income from each spouse’s joint property and sole property. Assets owned or acquired before entering into marriage are treated as each spouse’s sole property; this also applies to assets aimed to satisfy personal needs of the spouses, even if acquired during the marriage, or assets acquired through donations or heirship, unless otherwise explicitly indicated by the donor/testator.
Spouses are also entitled to amend the abovementioned rules by concluding a nuptial agreement and choosing one of the following regimes:
contractual matrimonial property;/li>
contractual separation of assets; and/li>
contractual separation of assets with equalisation of gained property.
By contractual matrimonial property regime, the spouses are entitled to broaden the statutory matrimonial property by adding certain assets, as jointly owned, which would otherwise be deemed the sole property of one of the spouses; however, that broadening may not include assets gained through donations or heirship, rights derived from joint ownership under specific regulations, intangible rights belonging to one of the spouses, claims for damages due to personal injuries or undue claims under income-earning activities.
The contractual separation of assets regime means that each of the spouses keeps sole ownership of both the assets acquired before the marriage and those gained during the marriage.
In the case of separation of assets with equalisation of gained property, the abovementioned rules apply, with this distinction that if this regime is terminated the spouse who acquired less gains on his sole property may claim equalisation of the gains. Where one of the spouses dies during effectiveness of such a matrimonial agreement, the equalisation takes place between the surviving spouse and the heirs of the deceased spouse.
Therefore, in the case of any joint property of the spouses, the surviving spouse gets upon succession half of the joint property and the inheritance law only applies with to the other half of the joint property.
What factors cause succession laws to apply on the death of an individual?
According to the Polish Private International Law Act, appropriate rules may be found in the EU Succession Regulation (No. 650/2012). This Regulation applies to the succession of persons who died on or after 17 August 2015.
In principle, the court of the Member State in which the deceased had his/her habitual residence at the time of the death will have jurisdiction to deal with the succession. However, the individual, prior his/her death, is entitled to choose the law to govern his succession, with a reservation that it has to be the law of the State whose nationality he/she possesses at the time of making the choice or at the time of death.
In particular the applicable law will govern:
the cause, time and place of opening of succession;
the determination of the beneficiaries, of their respective rights and obligations, including the succession rights of the surviving spouse or partner;
disinheritance and disqualification by conduct;
any claims that may arise against the estate or heirs;
any obligation to restore or account for gifts or advancements when determining the shares of the different beneficiaries; and
the sharing-out of the estate.
Succession prior to 17 August 2015 is governed by the Private International Law Act as valid on the date of the testator’s death (prior to introduction of the EU Succession Regulation), which provides that succession is governed by the law of the State of nationality of the deceased, unless otherwise chosen in a valid will or other disposition of property upon death. In such case, the testator could choose the law of the State whose nationality he possesses, the law of the State of his permanent residence, or the law of the State of his habitual residence.
The abovementioned does not affect the application of The Hague Convention of 1961.
So, basically and as a general rule, it is Polish inheritance law that will apply to Polish citizens.
How does the jurisdiction deal with conflict between its succession laws and those of another jurisdiction with which the deceased was connected or in which the deceased owned property?
With reference to point 14 above, according to Polish law and the EU Succession Regulation (No. 650/2012), where Polish inheritance law applies to succession matters, Polish courts are deemed competent in all the cases that may arise with respect to such succession proceedings.
Possible exceptions may arise in cases where the deceased owned a real property in another jurisdiction and such jurisdiction provides for separate regulations in that matter. However, that must be reviewed in each particular case, independently.
In what circumstances should an individual make a Will, what are the consequences of dying without having made a Will, and what are the formal requirements for making a Will?
Dying without having made a will results in the applicability of the general inheritance law principles, as mentioned in point 12 above.
Under the Polish Civil Code, a last will can only be made by one testator (no “joint wills” apply) having full legal capacity. In general, a last will is valid if made in one of the following forms:
holographic – made in writing, it has to be personally hand-written and signed by the testator, including a clear indication of the date,
in the form of a notary deed,
allographic – made orally by the testator or written by a third party in the presence of two witnesses and in front of an appropriate public officer. If possible, it should be signed by the testator, otherwise a respective annotation must be made in the will,
specific wills – a) oral will requiring three witnesses, b) made while travelling in front of the first officer of the vessel or aircraft and in the presence of two witnesses; c) military will.
No valid last will can be made via an attorney. A last will may be amended or revoked by the testator at any time, with respect to the rules mentioned above. However, when a new last will is concluded and there already is one in force not having been revoked by the new one, only the provisions that are in contradiction with the new document are deemed to be amended.
If the testator excluded one/some of the heirs from the last will, this may not be deemed automatic disinheritance. Such persons will be entitled to the compulsory portion of the estate in accordance with the applicable regulations. Disinheritance requires satisfaction of certain conditions applying to a potential heir and these are: persistent violation of moral rules; commitment of a criminal offence against the testator or his/her close relatives; or persistent violation of family obligations regarding the testator.
How is the estate of a deceased individual administered and who is responsible for collecting in assets, paying debts, and distributing to beneficiaries?
Under Polish law, until the estate of the deceased is acquired by the heirs the main estate administrator is the court. The court, however, may establish a curator of the estate where required by specific circumstances.
After the estate is acquired by the heirs, the estate belongs to the heirs as joint ownership in accordance with a legally binding court decision or notarial confirmation of inheritance; therefore, until dissolution of the co-ownership they are jointly and severally responsible for administration of the estate.
When the testator makes a will he/she may appoint a will executor or executors who will be responsible for administering assets, collecting on assets, paying debts, and finally distributing the estate to the beneficiaries, as specified in the will.
Do the laws of your jurisdiction allow individuals to create trusts, private foundations, family companies, family partnerships or similar structures to hold, administer and regulate succession to private family wealth and, if so, which structures are most commonly or advantageously used?
Poland as a country of civil-law rule does not recognise the concept of a trust. Moreover, Poland is not a signatory of the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. Private foundations are not allowed by Polish law; however, Polish residents are entitled to set up foreign private foundations.
A “family company” or a “family partnership” has no legal definition and is not construed as a special purpose structure. However, those terms are commonly used by family business circles as referring to companies/partnerships established under the Commercial Companies Code, where the ownership belongs to the family members.
How is any such structure constituted, what are the main rules that govern it, is there any requirement for registration with or disclosure to any authority or regulator, and what information about the structure is available to the public?
Please see point 18 above.
How are such structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
There are no special tax rules for settlors, founders, trustees, directors or beneficiaries of such structures and thus, the general tax rules described above shall be applied.
Are foreign trusts, private foundations, etc recognised?
As mentioned in point 18 above, trusts are not recognized by Polish law and Poland is not a signatory of the 1985 Hague Convention on the Law Applicable to Trusts and on their Recognition. Therefore, the transfer of assets to a trust would most likely be deemed by Polish courts as a donation made in violation of the heirs’ rights and therefore – treated as the estate – would constitute a base for calculating compulsory shares.
In general, a person entitled to a compulsory portion of the estate is entitled to have his/her claim augmented if assets are transferred to a trust within 10 years prior to the succession event.
However, foreign private foundations are recognized just as any other foreign legal entities.
How are such foreign structures and their settlors, founders, trustees, directors and beneficiaries treated for tax purposes?
There are no special tax rules for settlors, founders, trustees, directors or beneficiaries of such foreign structures and thus, the general tax rules described above shall be applied.
To what extent can trusts, private foundations, etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?
According to Polish forced heirship regulations, the transfer of assets to a foreign trust and a foreign private foundation would be deemed as a donation made in favour of a third party, being in violation of the heirs’ rights and, therefore – treated as the estate – would constitute a base for calculating compulsory shares.
In general, a person entitled to a compulsory portion of the estate is entitled to have his/her claim augmented if assets are transferred to a trust within 10 years prior to the succession event.
According to the Polish Civil Code, creditors of the settlor/founder who cannot recover damages from him/her because he/she has transferred assets to a trust/foundation may dispute this endowment (actio pauliana). The general limitation period is 5 years after the endowment.
What provision can be made to hold and manage assets for minor children and grandchildren?
As a general rule, parents or legal custodians hold and manage assets (including inherited estate) for minor children under supervision of the family court, especially in cases exceeding the scope of ordinary management.
However, it is possible to exclude the management by parents of assets that are donated or transferred to the minor in a will. The donor/testator may appoint an administrator of the assets transferred to the minor, who will manage them until maturity of the entitled minor. Where no administrator is appointed by the donor/testator but the parents are excluded from the management of the minor’s assets, the court will appoint a curator for such assets.
As mentioned above, Polish residents may also use the institution of a foreign private foundation, where the minor may be appointed a beneficiary whose rights are determined by such foundation’s rules. However, is such case, limitations arising out of the forced heirship rule must be considered.
Are individuals advised to create documents or take other steps in view of their possible mental incapacity and, if so, what are the main features of the advisable arrangements?
Polish regulations do not recognize any such documents or tools that could be used in view of possible mental incapacity. However, it has been raised that discussions on the implementation of a guardianship power of attorney into Polish legal system is highly required.
What forms of charitable trust, charitable company, or philanthropic foundation are commonly established by individuals, and how is this done?
Polish law enables setting up, operating and managing foundations established for charitable and socially-approved reasons, such as health and safety, development of economy and science, education, culture and arts, social welfare, environmental safety or protection of historical monuments.
Foundations may be established both by individuals and legal persons; an appropriate declaration of intent must be made in the form of a notarial deed. Foundations acquire legal personality and come into existence upon being entered in the National Court Register (KRS). They are subject to supervision by the relevant Ministry in terms of the foundation’s scope of operations and business objects.
A foundation operates in accordance with applicable regulations (Act on Foundations) and its statute, being represented by the members of its management board.
What important legislative changes do you anticipate so far as they affect your advice to private clients?
No important changes in law that would affect advice to private clients are anticipated for the nearest future. However, discussions concerning implementation of a private foundation to the Polish legal system were started, with the first stage of public consultations finished in mid-November 2019. We have been actively involved in the project of introducing that legal solution since the very beginning and created the main assumptions and guidelines for the possible future legislation.