Poland: Private Client

In Poland, there are two types of tax obligation: unlimited and limited. An unlimited tax obligation is constituted when individuals, with their place of residence in Poland, are taxed on their worldwide income, regardless of where the income is earned.

A natural persons have a place of residence in the territory of Poland if they:

1. have a centre of personal or economic interests (centre of life interests) in the territory of Poland; or
2. stay in the territory of Poland for more than 183 days during a tax year.

Meeting at least one of these criteria allows a taxpayer to be deemed a person residing in the territory of Poland.

A limited tax obligation arises when individuals do not have a place of residence in Poland and they are taxed solely on their income derived from Polish sources.

Below, is a list of circumstances in which the income of non-residents is deemed to be generated in Poland. The list includes:

1. work carried out in Poland under a service relationship, employment relationship, work under contract, and cooperative employment relationship, regardless of where the remuneration is paid;
2. any kind of operation undertaken personally in Poland, regardless of where the remuneration is paid;
3. any kinds of operation undertaken in Poland, including the operation of a foreign facility located in Poland;
4. a property located in Poland or rights to such property, including its sales in their entirety or part, or sales of any rights to such property;
5. securities and derivative financial instruments not being securities allowed for public trading in Poland on the regulated stock exchange market, including those obtained through the sales of such securities or instruments and exercising the rights stemming therefrom;
6. the deed of ownership transfer of shares in a company, all entitlements and obligations in a company not being a legal person, or deeds of participation in an investment fund or a collective investment scheme or other legal person, or the deed that is due resulting from holding shares where at least 50% of the value of assets, directly or indirectly, constitute properties located in Poland or rights to such properties;
7. regulated titles due, including left for disposal, paid or deducted by natural persons, legal persons, or organisational units not having a legal entity, with a residence, registered office, or management in Poland, irrespective of the place where the agreement was concluded or where the service is delivered; and
8. unrealised capital gains, referred to in Article 30da of the Personal Income Tax Act (exit tax).

Individuals in Poland are subject to personal income tax. Additionally, in Poland, a progressive income tax scale is used. Tax rates depend on the income earned, defined as: ‘the total revenue minus tax-deductible costs, earned in a given taxable year’. The Polish tax rates are relatively low: 17% and 32%. From 1 January 2022, new regulations raise the income thresholds from which the higher 32% PIT rate will be applied, raising the threshold from PLN 85,528 to PLN 120,000. Income up to PLN 120,000 will be subject to 17% PIT.

In many countries, high tax rates are connected with a high tax-free personal allowance. However, this is not the case in Poland where the tax-free amount was, for many years (2009-2016), the lowest of all EU countries (approximately €700).[1] It is worth stressing that the Polish Constitutional Tribunal issued a judgment (Case No. K 21/14) in which it stated that the level of this tax-free amount was unconstitutional insofar as it did not provide a correction mechanism for the tax-free amount to ensure a minimum standard for living. Hence, from 2018, the tax-free allowance for low earners has been increased to PLN 8,000 (approximately EUR 1,800). For earnings higher than PLN 8,000, the allowance decreases depending on income. Where yearly earnings exceed PLN 127,000, the personal allowance is not applicable at all. From 1 January 2022, new regulations introduce an increase in the tax-free amount to PLN 30,000. All persons whose income is subject to taxation according to the new tax scale will benefit from this free amount.

From 1 January 2022, new regulations introduce a new tax relief for persons earning income from a business activity, an employment contract, contract of agency work, service relationship, or co-operative employment relationship, whose annual remuneration is between PLN 68,412 and PLN 133,692.

This “middle-class relief” will reduce the PIT tax base. The relief will already be applied during the year, when calculating advance PIT payments. Depending on the level of remuneration, the amount of the relief will range from several to few of thousands of PLN.

But, from 1 January 2022, it will no longer be possible to deduct health contributions from income.

In Poland, advances for income tax are paid by a taxpayer or are withhold by the remitter every month (the monthly tax payment system).

Income from capital gains (dividends, interests, and profit on the sale of shares) that are not covered by social security contributions is taxed with a 19% flat-rate tax. Income from capital gains is not counted in overall income.

For individuals, the tax year ends on 31 December. Thus, each PIT taxpayer is required to file a tax return disclosing their aggregate annual income at the end of the tax year. The deadline to file the tax return and pay the tax liability is 30 April of the year following the tax year for which the return is filed.

In principle, taxpayers submit an annual tax return to the tax office separately, but there are exceptions. For example, spouses (with tax residents in Poland) can file a joint tax return for PIT purposes if certain requirements are met.

^[1]         Statistic presented in PWC’s Report: www.pwc.pl/pl/media/2016/2016-04-26-poziom-podatku-
dochodowego-w-polsce-sredni-na-tle-innych-krajow-ue.html.

As a rule, the rate of withholding tax on dividends is 19%, but double tax treaties may stipulate a lower rate (5, 10, or 15%). A WHT exemption may be obtained where the Parent Subsidiary Directive applies.

A WHT exemption is possible if the conditions of Article 22 (4) of the Corporate Income Tax Act are met, i.e.:

1.  the company which distributes a dividend is a company with its registered office in Poland;
2. the beneficial owner of the dividend is an EU or EEA company, subject to taxation with income tax on its total income, regardless of the place where it is earned;
3. the beneficial owner is a company that directly holds at least 10% of the capital of the company paying the dividends, where such holding is possessed for an uninterrupted period of no less than two years; and
4. the beneficial owner of a dividend does not enjoy an exemption from income tax on its entire income, regardless of the source of its income.

The above conditions should be confirmed by:

1. a certificate of tax residence;
2. a statement confirming that the conditions from Article 22 (4) the Corporate Income Tax Act are met; and
3. a statement confirming who is the beneficial owner of the dividend, including, in particular, the fact that the beneficial owner conducts a real business activity.

interest

As a rule, the rate of withholding tax on interest is 20%, but double tax treaties may stipulate a lower rate (5, 10, or 15%). Some double tax treaties also stipulate a 0% rate on interest (e.g. those with Sweden, the United States, or France). A WHT exemption may be obtained where the Interest and Royalties Directive (“IRD”) applies. The following requirements must be met:

1. the company disbursing the interest holds a minimum of 25% of the shares in the capital of the company collecting the interest; or
2. the company collecting the interest holds a minimum of 25% of the shares in the capital of the company disbursing the interest/license fees; or
3. the company subject to taxation on its total income in an EU/EEA state holds at least 25% of the shares in the capital of the disbursing company and in the capital of the company collecting the interest; and
4. a minimum 25% share has been held directly and continuously for at least two years – this requirement does not need to be met at the time of the disbursement of the above interest.

The application of the exemption depends on whether the Polish company has the recipient’s tax residency certificate and a statement that the recipient or the company referred to in c) is subject to PIT on its total income in its country of residence, regardless of where the income is earned, and is not taking advantage of an exemption from PIT on its total income regardless of source.

royalties

As a rule, the rate of withholding tax on interest is 20%, but double tax treaties may stipulate a lower rate (5, 10, or 15%). No tax is withheld if the above-mentioned conditions to apply the IRD are met.

intangible services (e.g. advisory services, advertising, and data processing)

Payments for intangible services, e.g. advisory services, advertising, and data processing are subject to 20% withholding tax unless otherwise stated by double tax treaties (treaties concluded with Poland, as a rule, do not provide for WHT on payments for intangible services).

The 20% withholding tax exemption in Poland is conditional upon the disbursing entity holding the recipient’s tax residency certificate.

At the beginning of January 2022, the new WHT regime introduced in 2018 will effectively enter into force. Under the previous regime, the exemptions or reduced WHT rates could be automatically applied based on double tax treaties or EU Directives. According to the new rules, the tax remitter is obliged to withhold the tax unless:

1. the payments do not exceed the threshold of PLN 2m per taxpayer per year; or
2. the tax remitter has submitted a statement under penal fiscal liability; or
3. an opinion has been obtained from the Minister of Finance.

The tax remitter submits a statement that it has conducted a verification procedure and it confirmed that the conditions for the preferential tax rates are met (e.g. beneficial owner status and the payment receiver conducting an actual economic activity).

In the verification process, the tax remitter must take due diligence and collect documents confirming the right to use preferential tax rates. The tax remitter’s statement is submitted under the threat of penal fiscal liability and potential tax sanction amounting to 10-20% of the WHT.

If the PLN 2m threshold is exceeded and neither the statement nor the opinion are provided, the withheld tax may be refunded in refund proceedings. The application should be accompanied by a statement submitted under penal fiscal liability confirming beneficial ownership status, the performance of a genuine business activity, and the satisfaction of remaining eligibility criteria for the PIT exemption / reduced rate. The tax authorities may conduct a tax audit or request information from the tax jurisdiction of the beneficial owner. The refund should be made within 6 months but this term may be extended.

First of all, Poland applies double tax treaties. Moreover, Poland ratified a Multilateral Instrument to Modify Bilateral Tax Treaties (“MLI”) and declared 78 double tax treaties to be covered by the MLI. The MLI, as a multilateral tax treaty, is intended to enable a more effective fight against “aggressive tax optimisation” and allow faster (automatic) changes to individual tax treaties. Its provisions were developed under the BEPS (Base Erosion and Profit Shifting) programme implemented by the OECD/G20.

The MLI convention changes the method of avoidance of double taxation in some Polish double taxation conventions, from the exclusion (exemption) method with progression to the method of deduction (credit) pro-rata.

In Poland, the MLI mechanisms apply to Australia, Slovenia, New Zealand, Serbia, Israel, Malta, Austria, Belgium, Canada, Denmark, Japan, Finland, France, Ireland, Lithuania, Norway, Slovakia, Singapore, Luxembourg, the United Arab Emirates, India, Ukraine, Iceland, Russia, Latvia, Qatar, Saudi Arabia, Cyprus, Portugal, Indonesia, the Czech Republic, Korea, Kazakhstan, Bosnia and Herzegovina, Albania, Jordan, Egypt, and the United Kingdom.

From 1 January 2022, in Poland, the MLI will also be fully applicable to Chile, Pakistan, Croatia, Hungary, and Greece.

In Poland, there is no wealth tax, but the Polish government has regulated solidarity tax. The provisions related to solidarity tax have been in force since 1 January 2019. The tax must be paid by taxpayers earning over PLN 1m a year and the rate is 4% from the surplus over this amount.

The tax base of the solidarity tax is:

1. income taxed according to the tax scale, e.g. income from employment, business activity, pensions, or remuneration from mandate contracts and copyrights contracts;
2. income from the disposal of securities or derivative financial instruments against payment, from the disposal of shares against payment, and from the acquisition of shares for a contribution in kind;
3. income from business activities taxed according to the flat rate of 19%; or
4. income from a Controlled Foreign Company (CFC).

The solidarity tax, together with a part of the Labour Fund contribution (amounting to 1.45% of its base), is credited to the Solidarity Support Fund for the disabled. In this way, the Polish government wants to raise funds to support the disabled. The solidarity tax was paid for the first time on income obtained in 2019 which the taxpayer settled by making a statement in 2020. As with income tax, the deadline to file the tax return and pay the solidarity tax is 30 April of the year following the tax year for which the return is filed.

In Poland, natural persons are subject to inheritance and donation tax.

Inheritance and donation tax is imposed on acquisitions due to the inheritance/donation of property (movable and immovable) located in Poland, and property rights exercised in Poland, including money. Tax is also applied to the acquisition of property located outside of Poland and the rights exercised abroad if, at the time of the deceased’s death/donation, the beneficiary/recipient was a Polish national or had a permanent place of residence in Poland. If neither the deceased/donator nor the beneficiary/recipient were Polish citizens or had a permanent residence in Poland at the moment of death/receipt, inheritance and donation tax is not levied.

Payers of inheritance and donation tax are grouped into three categories depending on their relationship with the testator. The first group consists of the spouse, descendants (children, grandchildren, etc.), ascendants (parents, grandparents, etc.), sons-in-law, daughters-in-law, siblings, stepfathers, stepmothers, and parents-in-law. The second includes descendants of siblings (nieces, nephews, etc.), siblings’ spouses, siblings of spouses, the spouse’s siblings’ spouses, other descendants’ spouses’ siblings of parents (aunts, uncles, etc.), and stepchildren’s descendants and spouses. Finally, the third group includes other acquiring parties, including unrelated parties.

Determining the base and rate of Polish inheritance and donation tax depends on the specific tax group the heir/purchaser of a donation belongs to and on the minimum tax-exempt amount. Currently, tax-exempt amounts are as follows:

• for acquirers from tax group 1: PLN 9,637;
• for tax group 2: PLN 7,276; and
• for tax group 3: PLN 4,902.

The tax on inheritance and donation applies to the acquisition of ownership of assets over the tax-free amount.

The table below presents the rates of Polish inheritance and donation tax:

The taxpayer has 14 days from the day the decision of the revenue office determining the tax rate (unless it was collected earlier by the notary) has been delivered to pay the inheritance and donation tax.

Poland is unique among tax jurisdictions across the world for exempting the testator’s/donator’s immediate family members from inheritance and donation tax.

Members of the family from the group I can benefit from a total exemption from inheritance and donation tax, and can therefore belong to the so-called “zero group”, provided that they meet the conditions set out in the legislation. The beneficiaries need to receive the donation by transfer to a bank account and report the acquisition to the competent head of their tax office within six months of the day the tax obligation has arisen.

Yes, there are reliefs as described above in our answer to question 6.

Additionally, from 1 January 2019, there is no PIT from the sale of inherited real estate if it occurs five years from the end of the year in which the property was acquired or built by the testator (and not since the date of the opening of succession – the death of the testator).

Moreover, currently, when the heir sells the inherited real estate, it is possible to include the expenses for the acquisition or construction of real estate incurred by the testator in tax-deductible costs.

In Poland, donations made to organisations connected with public benefit activity (e.g. associations, foundations) may be deducted from the donor’s income. However, it is only possible to deduct up to 6% of the income received. To take advantage of this preference, if the donation is in cash, the donation must be documented by proof of payment into a bank account. However, for a donation of goods or services, the donation must be confirmed by a document confirming the transfer of this donation and by documents confirming the actual expenses related to this donation. The donation should be designated by the donor for statutory purposes.

Additionally, if the donation was designated for statutory purposes, the public benefit organisation does not have to pay the inheritance and donation tax on it. Statutory purposes are defined in the catalogue under Article 17 of the Personal Income Tax Act.

Real estate tax

In Poland, real estate is subject to real estate tax. This is a local tax which means that the tax authorities are the executive bodies of municipalities.

The subject of the real estate tax is:

1.  land;
2. buildings or parts thereof; and
3. structures or parts thereof related to the conduct of a business activity (held by an entrepreneur).

Real estate tax payers are, i.a. natural persons who are:

1. owners;
2. independent holders;
3. perpetual usufructuaries of land; or
4. holders of a real estate being the property of the State Treasury or a local government unit.

Depending on the subject of taxation, the taxable base for real estate tax is:

1. area (land);
2. usable floor area (buildings); or
3. depreciation or market value (structures).

The tax rate of the real estate tax is set by the councils of individual municipalities. However, the maximum level of the real estate tax rates is limited by law. The resolution determining the amount of the real estate tax rates in the territory of the relevant municipality for the given fiscal year, together with the related forms, should be available on the website of the municipality where the subject of taxation is located.

Income from real property

Under double tax treaties concluded by Poland with other countries, income derived from real estate may be subject to taxation in the place where the real estate is located. However, this does not automatically exclude taxation in the country of residence.

According to the double tax treaties, the term “real property” has the meaning given to it by the law of the country on whose territory the given property is located.

In addition, double tax treaties specify that the indicated rule also applies to income derived from the direct use, lease, rental, or any other kind of use of real property.

The double tax treaties also apply to income from the real property of an enterprise.

PIT

There is no PIT on the sale of a property if:

1. it does not take place in the performance of business activities; and
2. it occurs five years from the end of the year in which the property was acquired or built.

Taxpayers who obtained revenues from the sale of real estate prior to the lapse of 5 years from its purchase, must file a PIT-39 return when making their annual tax return and thus, tax the sale. The tax rate is 19%. The taxable amount is the difference between the revenue from the sale of real property or property rights against tax-deductible costs.

Therefore, there is no PIT on the sale of a property prior to five years from the end of the year in which the property was acquired or built if the income earned therefrom is allocated for housing purposes.

Additionally, there is no PIT on the sale of certain types of inherited property. The sale of inherited real estate is tax-exempt from PIT if it occurs five years from the end of the year in which the property was acquired or built by the testator. Also, the costs of revenues from the sale of inherited real estate are increased by the costs related to the inheritance incurred by the heir (as the taxpayer). Also, the documented costs of acquisition or construction of the real estate are borne by the testator.

It should also be added that, in Poland, the rental of real estate property is taxed. From the beginning of 2021, every property owner, i.e. not only a natural person but also an entrepreneur, may choose a lump-sum form of taxation of income from property rental.

Tax rates are:

1. 8.5% on income up to PLN 100,000 per year; and
2. 12.5% above the limit of PLN 100,000 per year (but only for the excess of that amount).

VAT

VAT must be paid when a property is sold by an individual as part of a business.

VAT (or other indirect tax)

Polish regulations on Value Added Tax (VAT) are based on EU legislation. This means that the principles of VAT taxation in Poland are, in many cases, the same as in other EU member states.

From 1 July 2020, a new VAT matrix of regulations was applied.

The basic VAT rate applicable to most goods and services is 23%.

The rate of 8% applies to pharmaceuticals and medical products; services related to culture, sports, recreation, personal transport, maintenance works and hotel services; as well as goods and services normally used in agricultural production (including livestock, fertilisers, and plant protection products).

The rate of 5% applies to supplies of certain foodstuffs (e.g. bread, dairy products, and meats) as well as vegetables and certain roots and tubers, edible fruits and nuts, and the peel of citrus fruits.

A 0% VAT rate applies to the intra-Community supply of goods, exports of goods, and some international transportation services and related services.

Tax on civil law transactions (“TCLT”)

A tax on civil law transactions applies to the following activities:

1. contracts of sale and contracts of the exchange of things and property rights;
2. borrowing agreements concerning money or things specified only by type;
3. contracts of donation – concerning taking over by a donee of debts and a donor’s burdens or obligations;
4. contracts of annuity;
5. contracts of the distribution of estate and contracts of the cancellation of joint ownership – related to payments or additional payments;
6. the establishment of a mortgage;
7. the establishment of the usufruct for consideration, including an irregular usufruct and paid easement;
8. contracts of irregular deposit; and
9. deeds of association.

Rates of the TCLT tax are differentiated and specified in the TCLT Act.

Exit tax

From 1 January 2019, when Poland implemented the ATAD Directive, a new tax was introduced into Polish legislation i.e. exit tax.

There are two exit tax rates: a 19% basic rate, and a 3% rate if the tax amount of the assets is not calculable.

Exit tax applies in 2021 to both self-employed and non-employed individuals and legal entities.

Tax liability will arise as a result of:

1. the transfer of assets by a taxpayer from Poland to another country, including those owned by a permanent establishment, triggering, in Poland, the taxation of unrealised gains generated in the period when the assets were located in Poland; or
2. a change of tax residence.

The tax base is the sum of unrealised gains determined for individual assets. Income from unrealised gains is the surplus of the market value of an asset over its tax value, determined as at the date of its transfer or as at the date preceding the date of a change of tax residence.

For natural persons, exit tax will apply only to transferred assets with a market value that exceeds the amount of PLN 4,000,000.

Stamp duties

Stamp duty is imposed on certain activities undertaken by the public administration, e.g. the issuance of certificates, submission of powers of attorney, and permissions and other documents issued by central and local authorities. The amount of stamp duty and the fixed fee varies for each activity which are stipulated in the pertinent regulations.

The limited tax obligation arises when individuals do not have a place of residence in Poland, and they are taxed solely on their income derived from Polish sources.

Tax exemption

Additionally, a return relief is planned to be introduced in 2022. People who have been foreign tax residents for at least three years and who decide to move their residence to Poland and acquire the status of a Polish tax resident are to gain the possibility to apply the tax exemption for four years. The previous foreign residence will have to be confirmed by foreign tax residency certificates or other evidence documenting the residence for tax purposes. The exemption will apply to income from employment relationships, contracts of mandate, and business activities, up to an amount not exceeding PLN 85,528 per year. This solution will be addressed exclusively to persons:

✓ having Polish citizenship, a Polish I.D. card, or citizenship of an EU or EEA member state or Switzerland;

✓ reside continuously for at least three years in an EU or EEA member state, Switzerland, Australia, Chile, Israel, Japan, Canada, Mexico, New Zealand, South Korea, the United Kingdom, or the USA; or

✓ continuously reside in the Republic of Poland for a period of at least five calendar years preceding the last three years.

High net-worth individuals

Moreover, a new regulation introduces a lump-sum tax on foreign income for taxpayers with an above-average level of assets (“high net-worth individuals”).

This is a new form of flat-rate taxation on foreign income for persons who decide to transfer their tax residence to Poland. As a result of choosing this form of taxation, foreign income will be taxed with a fixed lump sum tax regardless of the amount of foreign income.

Individuals who have been foreign tax residents for at least five of the six years preceding the year in which they acquired the status of a Polish tax resident, and who decide to move their place of residence to Poland, are to gain the possibility of applying a lump-sum tax on foreign income for a period of ten tax years. Its amount, irrespective of the level of income, would be PLN 200,000 annually.

One condition to applying the flat rate is incurring expenditures, in Poland, for economic growth, the development of science and education, the protection of cultural heritage, or the promotion of physical culture, in the amount of at least PLN 100,000 a year on average. Members of the closest family of a taxpayer taking advantage of the flat rate, understood as a spouse or minor children, will also be able to benefit from this solution. The flat rate on their foreign income would be lower by half and would amount to PLN 100,000 annually.

Residency Permit: authorization to remain in the Polish territory may be obtained based on different grounds. A foreign resident planning to stay in Poland longer than 3 months may apply for a temporary residence permit. A temporary residence permit is issued for a maximum period of 3 years. Additionally, a foreign resident may also obtain a residence card in Poland. This document (together with a valid travel document, e.g. passport) entitles to cross the Polish border multiple times without a visa, as well as to enter other Schengen countries and stay in their territory for a period not exceeding 90 days within 180 days.

Estate planning: the estate structure held by individuals should be properly analysed before becoming a Polish tax resident in order to if necessary be adapted to the Polish and EU tax legislation.

The law of succession is based on testamentary freedom and the protection of relationships between family members.

The right to succession may result from two sources: a will or a statute (the Polish Civil Code). A will takes precedence over statutory inheritance.

In Polish law, there is also the institution of a reserved portion of inheritance. The testator’s descendants, spouse, and parents who would be entitled to inherit from the testator under law are entitled to a reserved portion of the estate unless they have been disinherited in the will.

The amount of the reserved share due to the people mentioned above is, as a rule, 50% of what they would have received under the statutory succession. 66% of the succession share is due to minors and persons permanently incapacitated for work.

The testator may deprive their descendants, spouse, or parents of their reserved share in a will if the person entitled to the reserved share:

1. against the will of the testator, acts persistently in a manner contrary to the rules of social intercourse;
2. has committed, against the testator or one of their closest persons, an intentional offence against life, health or freedom, or a gross insult to honour; or
3. persistently fails to fulfil family obligations towards the testator.

As a rule, spouses remain in a community of property. Then, in the event of the death of a spouse, the matrimonial property is inherited according to succession law principles.

Prenuptial agreements do not change the rules for passing on inheritance, including the intestate succession rules which are binding when the testator does not draw up a will. This means that spouses who have concluded a prenuptial agreement inherit from each other according to succession law principles. This agreement may affect the seizure of assets of the inherited wealth only (there is no succession of the couple’s property, only the individual property of the deceased spouse).

In Poland, there is no civil partnership; this is not regulated by Polish law. However, there are no obstacles to prevent either party in such a relationship from drawing up a will that decides who will receive a party’s estate. Polish succession law protects the closest relatives of a deceased person by forced share. Only descendants, a surviving spouse, and the deceased’s parents have the right to a statutory portion.

Since August 2015, under the EU Succession Regulation 650/2012, the new rules of succession are applied in European Union Member States.

The main change the regulation introduces is a change of the rules to determine the law applicable to succession as a whole. According to Regulation, the law applicable to all matters of succession will be the law of the state where the deceased had their habitual residence at the time of their death, and not the law of their country of nationality.

The regulation also provides for a ‘closer connection’ clause. Where it is clear from all the circumstances of the case that the deceased was manifestly more closely connected with a State other than the State of their habitual residence at the time of death, the law of that other State may exceptionally become the law applicable to the succession.

Where the future testator does not wish to be subject to the succession rules of the State of their habitual residence, the Regulation allows him to choose the law of the State of their nationality as the law applicable to the succession as a whole. The choice of law must be made expressly in a declaration to that effect. The law applicable to the validity of the declaration will be the law of the State chosen. Any modification or revocation of the declaration of choice must meet the requirements as to the form laid down for the modification or revocation of a disposition of property upon death (will).

As mentioned above in question 15, EU Succession Regulation 650/2012 introduces important regulations concerning the law applicable to matters of succession. Under Article 21 of the regulation, all succession matters will be governed by the law of the country in which the deceased had their habitual residence at the time of their death, even if any assets making up the estate are located in another country. While the new Regulation provides for a number of exceptions to Article 21, the law of the State of habitual residence at the time of death remains the rule.

However, under Article 22(1) of Regulation No 650/2012, any person may choose, as the law to govern their succession as a whole, the law of the State whose nationality they possess at the time of making the choice or at the time of death. Therefore, the choice of applicable law will most often be made in the will.

The Polish law of succession is mainly regulated in the Polish Civil Code. However, specified provisions regarding the law of succession are also found in other statutory laws (e.g. banking law, labour law, and the Code of Commercial Companies). The right to inherit is protected by the Polish Constitution which states that everyone has the right of succession and this right is equally protected under law.

The law of succession is based on legal principles; namely, testamentary freedom and the protection of relationships between family members.

The right to succession may result from two sources: a will or a statute (the Polish Civil Code). A will takes precedence over the statutory inheritance. A testate succession occurs when a testator (a person with full legal capacity) expresses their last will through one of three forms of will. The first is the simplest: the will should be written entirely by the hand of the testator, who must sign and date it. The second may be made in the form of a notarial deed. The third is to make a will by declaring its content orally before a local government officer in the presence of two witnesses.

Statutory succession should be applied when no (valid) testament exists or the persons who were appointed as heirs in the testament disclaimed the testament or are unable to become heirs. There are four groups of heirs under Polish succession law. The range of these entities is determined by family ties, e.g. blood ties, marriage, or adoption.

If an individual has no residency in Poland but owns real property here, then, in principle, they are not subject to Polish inheritance law (see question 15 and 16).

As a rule, the estate of the deceased is administered by the heirs.

A testator may appoint an executor to ensure that all the testamentary provisions will be properly conducted. The executor administrates the succession property, pays the debts of the estate, executes legacies, and distributes the succession property to the heirs in accordance with the will of the testator.

However, the executor cannot be treated as a fiduciary or a trustee.

Moreover, on 5 July 2018, in Poland arose a new institution – the management of the succession of the individual enterprise. The main assumption of the new regulation is to enable a smooth continuation of a company’s operation after the death of its owner.

The regulations assume that, after the death of the owner of the enterprise, the company will be able to retain employees, tax identification number, and continuity of tax settlements. It is also possible to execute concessions or permits and tax rulings obtained by the entrepreneur, as well as the commercial contracts they concluded. The regulations are also aimed at enabling entrepreneurs to set up the succession manager who will take over the running of the company after the owner’s death.

The succession manager will manage the company from the death of the person running the company until such time as the inheritance is divided between the heirs. The succession manager will be appointed by a business owner, a spouse, or the people inheriting the enterprise – after the death of the business owner – and may be a natural person who has full legal capacity, regardless of whether they are related to the entrepreneur or not, and regardless of whether they professionally deal with property management. The Polish legislator intends to introduce an incentive to take over and run family businesses.

The Polish legislator provides a new taxpayer type for certain taxes (PIT, VAT, excise, game tax, tonnage tax, and ship tax), i.e. the ‘enterprise in inheritance’. The introduction of regulations ensures the continuity of tax settlements. The enterprise in inheritance is able to use the taxpayer identification number of the deceased entrepreneur.

So far, trusts and private foundations are unknown to the Polish legal system; therefore, they are not widely exercised in Poland. However, it is increasingly being argued that it is necessary to introduce the institution of the family foundation into the Polish legal system. In March 2021, a draft law on family foundations was published. Then, a new draft law of 15 October 2021 was published. It is planned that the new rules will enter into force on 1 June 2022 and are to include beneficial solutions for family businesses, e.g. tax and succession privileges.

According to the plans, the family foundation will be exempt from capital gains tax. According to the new version of the draft law, the tax will appear only at the moment of the payment of the resources to the beneficiaries. Therefore, not only the founder’s contributions but also capital profits of the foundation, i.a. dividends and the income from the sale of shares and interest of family foundation will be exempt from CIT.

Payments from the family foundation to beneficiaries will be subject to inheritance and donation tax, but the zero group, i.e. the founder’s closest family, will be exempt from this tax if the foundation’s benefits do not come from its untaxed income. The new bill provides for the extension of the “nil-group” of beneficiaries, including sons-in-law, daughters-in-law, and parents-in-law.

If the benefit will come from the foundation’s CIT-exempt income, the beneficiary will have to pay inheritance and donation tax. On the other hand, benefits to other beneficiaries (outside of the zero group) will be taxed with inheritance and donation tax according to the appropriate scale in a given case.

Therefore, the family foundation will be a payer of inheritance and donation tax and will have to keep records of the assets entrusted to it and their increments.

In contrast to the original draft law on the family foundation, the new draft provides that the family foundation will be able to carry out economic activities aimed at protecting and multiplying the assets entrusted to it.

Currently, the assets-holding vehicles that are the most commonly used in Poland are companies and partnerships. Types of entity operating in Poland include the following:

1. limited liability company (spółka z ograniczoną odpowiedzialnością – “sp. z o.o.”);
2. joint-stock company (spółka akcyjna – “s.a.”);
3. simple public limited liability company (prosta spółka akcyjna – “P.S.A.”) – new type of entity from 1 July 2021;
4. joint-stock partnership (spółka komandytowo-akcyjna – “s.k.a”);
5. registered partnership (spółka jawna – “sp. j.”);
6. limited partnership (spółka komandytowa – “sp.k.”); and
7. professional partnership (spółka partnerska – “sp. p.”).

For this reason, the most common structures that are used in Poland are companies and partnership

Capital companies and partnerships are most often established based on the articles of association (alternatively based on another act), and often, the articles of association or different acts must be drawn up in the form of a notarial deed (e.g. when establishing a limited liability company, a notarial deed is obligatory). Companies must be registered in the commercial register, i.e. the National Court Register (KRS). The register contains information, e.g. shareholders/partners, rules of representation, and proxies.

Capital companies and partnerships may be established in various forms in Poland. Capital companies can be formed in the following forms:

1. a limited liability company;
2. a joint-stock company; or
3. a simple public limited liability company.

Partnerships may be formed in the following forms:

1. a registered partnership;
2. a professional partnership;
3. a limited partnership; or
4. a limited joint-stock partnership.

From 13 October 2019, the Polish legislator introduced a Central Register of Ultimate Beneficial Owners. This system collects and processes information about natural persons exercising control or indirect control over the company, known as an ultimate beneficial owner. All limited liability companies, joint-stock companies, simple public limited liability companies, joint-stock partnerships, registered partnerships, limited partnerships, professional partnerships, foundations, and others, are required to report their ultimate beneficial owners.

In 2014, the OECD published a global standard for the automatic exchange of financial information in tax matters which consisted of a model agreement between the competent tax authorities of each country and a common standard for the exchange of information along with IT procedures for its implementation. These activities led to an international system for the automatic exchange of tax information based on the Common Reporting Standard (“CRS”). The requirements of the CRS system oblige, i.a. banks and other financial institutions, including insurance companies and investment funds, to confirm the country of their clients’ tax residences and to transmit basic information about the accounts of these clients to the competent tax authorities of their country.

The European Union has also enacted Council Directive 2011/16/EU of 15 February 2011 on administrative cooperation in the field of taxation. This provides for the mandatory automatic exchange of information between EU countries on certain categories of income and capital held by taxpayers in the country other than their country of residence. In turn, Council Directive 2014/107/EU of 9 December 2014, amending Directive 2011/16/EU with regard to the mandatory automatic exchange of information in the field of taxation, extended the mandatory automatic exchange of information between EU tax authorities by, i.a. further specifying the concepts of “reporting financial institutions” and “reported accounts”.

In Poland, the above regulations on the automatic exchange of information between tax administrations were implemented by enacting the Law on the Exchange of Tax Information with Other States on 9 March 2017.

The head of the National Fiscal Administration is the competent authority in matters concerning the exchange of tax information with other countries and, in this respect, the head is vested with the powers of the tax authority. The exchange of tax information with the country (Member State) takes place at the request of the competent authority of a country (Member State) or ex officio.

It should be noted that, from 2019, Poland introduced the obligation to report tax schemes. This is the result of the implementation in Polish tax law of BEPS Action 12 and the Council Directive (EU) 2018/822 regarding the mandatory disclosure rules for cross-border transactions. The Polish Mandatory Disclosure Rules (“MDR”) are applicable to those who develop tax planning schemes or make them available to or support enterprises in their implementation (e.g. tax advisers, attorneys-at-law, or employees of financial institutions). The MDR applies to both cross-border and domestic transactions. The main reason to introduce the MDR is to discourage taxpayers and their advisors from using tax planning schemes.

Partnerships (excluding limited joint-stock partnerships and, from 2021, limited partnerships and, to some extent, registered partnerships) are not subject to CIT. Income earned by partnerships is allocated to the partners and subject to CIT / PIT at their level, together with other earnings.

Corporations, i.e. limited liability companies, simple public limited liability companies, joint-stock companies, joint-stock partnerships, limited partnerships, and, to some extent registered partnerships, are treated as separate and distinct from their shareholders so that the taxable income is taxed at the level of the corporation itself.

A limited partnership (“LP”) was a very popular form of conducting business in Poland.

It should be clarified that, at the moment, LPs are entities created by two types of partner, i.e. a partner whose liability for the company’s obligations is unlimited and who conducts the company’s affairs and represents it in all issues before third parties; and a partner with limited liability who is obliged to a fixed amount which does not need to reflect the partner’s contribution to the LP. LPs were not subject to CIT. However, under new regulations from 1 January 2021, LPs have become CIT taxpayers. Essentially, this means that the income generated by LPs (and certain general partnerships) which, up to now, have been treated for CIT purposes as tax transparent entities, is to be covered by 9% or 19% CIT at the partnership level and PIT and CIT at the general and limited partners level. This means that profits generated by LPs are subject to double taxation. Admittedly, the new act provides for a tax exemption of 50% of the revenue earned by a limited partner through the limited partnership; however, no more than PLN 60,000 annually (separately for profits from each LP in which the taxpayer is a limited partner). Such exemption is not applicable to limited partners owning at least 5% of the shares in a company with a legal personality or in a company in the process of formation which is a general partner in that limited partnership, or such limited partner acts as a board member of the general partner or those who are their related entities. The general partner will have the right to deduct the amount of tax already paid by the limited partnership – in proportion to his participation in its profits. A similar taxation system is applicable in some cases to general partnerships. A general partnership does not become a CIT payer only if all its partners are natural persons. If not, a CIT exemption could be applied if the income tax payers participating in the profits of the general partnership are disclosed to the competent tax office.

Trusts are generally not recognised in Poland (see question 19). Income received by a foreign trust may be attributed to the settlor or the beneficiaries if they are Polish residents.

The lack of regulation of the institution of a trust in the Polish legal system causes a problem with the proper classification of income in the situation of a payment from a trust to a beneficiary who is a Polish tax resident. In the community of tax advisors and among tax authorities, there are two competing opinions regarding the classification of a payment from a trust as income.

It is often possible to encounter a situation in which the founder of a trust has stipulated in the trust agreement that the trustee may make distributions to the beneficiaries only after the founder’s death. As such, it should be taxed under the Inheritance and Donation Tax Act. This position is confirmed by the tax authorities in the interpretations they have issued.

Sometimes, the tax authorities claim that the payment from the trust should be treated as income from other sources and, consequently, should be taxed under the Personal Income Tax Act and the general principles according to the tax scale.

It is not possible to create a trust or a private foundation in Poland as Polish law does not provide for such legal forms (see question 19).

A statutory representative is responsible for holding and managing the property of a minor. In most cases, a statutory representative will be one of the parents. When none of the parents may represent the child, the guardianship court may appoint a guardian for a child. If parental custody is suspended, limited, or deprived by the court, the court appoints a custodian to represent the minor.

It is a basic rule that a legal act performed through a representative, within the limits of their authorisation, produces a direct effect for the minor. The consent of the statutory representative is required when a person with a limited capacity for legal acts (i.e. a minor) assumes an obligation or disposes of their right.

Nevertheless, when a child executes a contract of a type commonly executed in minor current day-to-day matters, this contract becomes valid at the moment it is performed unless it causes serious harm to that person. A minor may, without the consent of their statutory representative, dispose of their earnings (e.g. scholarships or causal seasonal work) unless the guardianship court rules otherwise for a good cause. Also, when the statutory representative of a minor gives them specific property items for unrestricted use, that child acquires full capacity for legal acts concerning these property items. Under law, legal acts for which the consent of the statutory representative is insufficient constitute an exception.

A minor may receive a donation in Poland. Legal guardians of the child execute the management of the minor’s property until they reach the age of maturity; thus, they are not the owners of the item which the child acquires. The management should be performed in such a way that it aims at the good of the child who is the owner of the item and does not cause any harm.

A minor is always entitled to accept donations if they are small or if they do not impose any obligations. If they require actions that go beyond the ordinary management of the property, the authorisation of the family court is necessary.

A minor child may be an heir in Poland. A testator may leave property to a minor in a will. However, the property of a minor is administered by legal guardians. Polish legislation provides for safeguards for the interests of minors. Managing the child’s property in the scope exceeding ordinary management is possible only after obtaining the family court’s consent. However, a sale conducted without such consent is null and void (i.e. it does not have any legal consequences). To sell a minor’s asset, a request to the family court should be filed first. The parent has to indicate what would be sold and what the purpose of the sale is. The court will give its consent only if such action will not be detrimental to the minor. Similarly, in the case of a division of an inheritance, it is the court that decides about the division. The court’s consent is also required to reject an inheritance on behalf of a minor.

Under Polish law, every person acquires full legal capacity upon reaching the age of 18. This means the ability to produce legal effects with one’s own behaviour and the ability to acquire rights and incur obligations. A person with full legal capacity can dispose of their rights and obligations, conclude contracts (e.g. acquire ownership rights to a vehicle, real estate, conclude a credit agreement), decide about their health, medical treatment, etc.

A person who is incapable of functioning independently can be placed under partial or full incapacitation.

A person may be fully legally incapacitated, when the person has reached 13 years of age and is incapable of controlling their behaviour due to mental illness, mental retardation, or other mental disorder, e.g. alcoholism or drug addiction. A guardian is appointed for that person unless the person is still under parental authority.

A partial legal incapacitation may arise when an adult (a person who has reached 18 years of age) requires assistance to manage their affairs due to mental illness, mental retardation, or other mental disorder, in particular, alcoholism or drug addiction. A curator is appointed for an individual who is partially legally incapacitated.

A person is placed under incapacitation by a court order after the court has verified the person’s state of mind. The court also appoints a guardian/curator for an incapacitated person.

A person under total incapacitation cannot independently make legal acts and if they do so, it is not valid. They can only act on their own in minor, everyday matters, e.g. day-to-day shopping and using minor services. These actions will be valid as long as they do not cause serious harm to the person.

A partially incapacitated person can independently perform actions related to contracts commonly concluded in minor, everyday matters (use of minor services). That person can take actions that are neither an obligation (e.g. to carry out an order) nor a disposal (e.g. disposal of property). A partially incapacitated can freely, without the consent of a legal representative, e.g. a legal guardian, manage their earnings, unless, for important reasons, the guardianship court decides otherwise. A partially incapacitated may also freely dispose of property which the legal representative has given to them to freely use.

However, the majority of legal acts performed by a partially incapacitated person require the agreement – approval – of the legal guardian to be valid. These will include all binding and disposing actions, e.g. purchasing, selling, donating, commissioning, or leasing.

Activities that a partially incapacitated person cannot perform include, e.g. making, amending, or revoking a will.

In more important matters, in particular, those exceeding the scope of the ordinary management of the property of the person under incapacitation, the legal guardian will additionally have to obtain the court’s consent.

In Poland, not-for-profit non-governmental organisations (“NPOs”) can be carried out primarily in the following forms:

1. A public foundation – to establish a foundation, the founder must sign a statement of intent to establish the foundation in the form of a notarial deed or in a will. However, the foundation acquires legal personality and the capacity to act only after it is registered in the National Court Register (KRS). Foundations operate based on statutes.
2. An ordinary association – this is entered into the register of ordinary associations kept by a country mayor. Ordinary associations act based on regulations.
3. A “registered” association – this is registered in the National Court Register (KRS). A “registered” association acts based on its statutes.

A foundation is established by a founder (or founders). The necessary element for its establishment is property. A group of people is needed to establish a foundation. A minimum of 7 people is needed to establish a “registered” association. A minimum of 3 people is needed for an ordinary association. No assets are needed to establish an association.

Polish NPOs may apply for public benefit organisation (“PBO”) status. PBOs are exempt from paying taxes (e.g. CIT, real estate tax, or transfer tax) devoted to their statutory goals.

Associations and foundations that do not acquire PBO status are exempt from paying CIT if their statutory objectives fall within particular categories, e.g. science, education, culture, sports, environmental protection, support for technical infrastructure in rural areas, healthcare, social care, religious worship, the occupational and social rehabilitation of the disabled, and charity.

NPOs will be obligated to pay tax on unrelated business income. In addition, foundations and associations are not subject to inheritance and donation tax in Poland.

Associations and foundations are the most frequently chosen forms of social activity. However, there are also other possibilities, i.e. other forms of organisation. It is also possible to run non-formal activities, e.g. informal groups, sports clubs, social committees of parents’ councils, and others.

The Covid-19 pandemic resulted in a number of permanent and temporary changes to tax law. Examples of changes include:

1. The deadline for filing PIT and CIT tax returns has been postponed once;
2. The deadlines for filing MDR tax schemes have been suspended. The suspension of domestic tax schemes continues;
3. The deadline to apply the residence certificate has been extended. If the 12-month deadline for the residency certificate would expire during the COVID-19 pandemic, then Polish withholding tax payers may take the certificate into account for the duration of the pandemic and for 2 months after their cancellation. During the pandemic (and 2 months after the end of the pandemic), it is also possible to use a copy of the residence certificate for all types of payments if the information from the submitted copy of the residence certificate does not raise reasonable doubts as to its accuracy. The limit on payments to a single entity of PLN 10,000 per calendar year has also been temporarily lifted. During the pandemic, Polish withholding tax remitters may use a copy of the residence certificate also for payments exceeding PLN 10,000;
4. A preference for deducting donations made to healthcare entities to counteract COVID-19 and to support education;
5. Some entrepreneurs, due to the difficult economic situation and prolonged restrictions on doing business in Poland resulting from the COVID-19 pandemic, received support in the form of a standstill benefit which was exempted from PIT;
6. A temporary exemption from Social Insurance Institution (ZUS) contributions for both the entrepreneur and the employed workers after fulfilling the conditions specified in the pandemic regulations;
7. During the period of the COVID-19 pandemic, the deadline to submit a notice of payment to an account outside the white list is extended to 14 days from the date of ordering the transfer;
8. Taxpayers who, because of the COVID-19 pandemic:
   1. incurred a loss in 2020 from a non-agricultural business activity; and
   2. obtained, in 2020, total income from non-agricultural economic activity lower by at least 50% than the total income obtained in 2019 from such activity, may, on a one-off basis, reduce by the amount of that loss, but not more than PLN 5,000,000, respectively, from the income or revenue received in 2019 from the non-agricultural economic activity.

A number of significant changes in tax law will come into force in Poland from 1 January 2022; in particular, these are:

1. An increase in the tax-free amount to PLN 30,000. All persons whose income is subject to taxation according to the tax scale will benefit from this free amount.
2. Regulations that raise the income threshold from which a higher 32% PIT rate will be applied to PLN 120,000. Income up to PLN 120,000 will be subject to 17% PIT.
3. Changes in the scope of health contributions:
   For taxpayers conducting a business activity, the amount of health insurance contribution will be determined in a new way:
   1. For those settling with a 19% flat tax, the contribution is to be 4.9% of income.
   2. For people settling with a lump-sum tax, the contribution will be determined by three thresholds based on 60, 100, and 180% of the average monthly salary.
   3. In other cases, a 9% health insurance contribution will apply.
   4. The proposed regulations do not allow health insurance premiums to be deducted from PIT. The change will affect, i.a. employees, contractors, and other persons with income taxed according to the 17-32% scale.
   5. The lack of the possibility to deduct the health insurance premium from PIT will result in a decrease in net remuneration in many cases. The effects of this change will be felt most strongly by persons who receive income from sources other than employment contracts and employees whose annual salaries exceed PLN 133,692.
   6. Employees whose annual salary does not exceed PLN 133,692 will be able to take advantage of an additional relief, the “middle class relief”, which will compensate for the lack of the possibility to deduct health contributions.
   7. The health insurance contribution amounts to 9% of the tax base (as a rule, the amount of the salary). Currently, 7.75% of the contribution assessment base can be deducted from PIT. The effective cost of the contribution – what you have to pay over and above the tax amount – is only about 1-1.25% of the salary.
4. From 1 January 2022, a new tax relief will be applicable (see our answer to question 11). People who have been foreign tax residents for at least three years and who decide to move their residence to Poland and acquire the status of a Polish tax resident are to gain the possibility to apply the tax exemption for four years. The previous foreign residence will have to be confirmed by foreign tax residency certificates or other evidence documenting the residence for tax purposes. The exemption will apply to income from employment relationships, contracts of mandate and business activities, up to an amount not exceeding PLN 85,528 per year.
5. A foreign income lump-sum for taxpayers with above-average levels of assets (“high net-worth individuals”). This is a new Polish regulation with a new form of flat-rate taxation on foreign income for persons who decide to transfer their tax residence to Poland (see our answer to question 11). As a result of choosing this form of taxation, foreign income will be taxed with a fixed lump-sum tax regardless of the amount of foreign income.

Individuals who have been foreign tax residents for at least five of the six years preceding the year in which they acquired the status of a Polish tax resident, and who decide to move their place of residence to Poland, are to gain the possibility of applying a lump-sum tax on foreign income for a period of ten tax years. Its amount, irrespective of the level of income, would be PLN 200,000 annually.

One of the conditions to apply the flat rate is to incur, in Poland, expenditures for economic growth, the development of science and education, the protection of cultural heritage, or the promotion of physical culture in the amount of at least PLN 100,000 a year on average. Members of the closest family of a taxpayer taking advantage of the flat rate, understood as a spouse and minors, will also be able to benefit from this solution. The flat rate on their foreign income would be lower by half and would amount to PLN 100,000 annually.