This is to alert you to changes in the income taxation of posted workers.

The first change relates to an existing scheme called “abolition relief”. This relief was designed to equalize the Polish tax burden of taxpayers with similar incomes whose actual taxation was different exclusively due to different double tax avoidance methods adopted in the respective tax treaties. The current scheme allows Polish tax residents earning abroad to limit the tax impact of factors that are totally beyond their control. The relief is particularly interesting for those required to apply the credit method as the scheme will practically equalize their tax down to the same amount as that arising from the exemption-with-progression method.

In accordance with the Act of 28 October 2020 to Amend the Personal Income Tax Act, the Corporate Income Tax Act, the Act on Flat-Rate Tax on Incomes of Certain Natural Persons, and Certain Other Acts, the relief will be capped at an amount equalling the tax credit limit (which is currently at PLN 1,360).

The other change arises from the MLI Convention, which contemplates amendments to double tax treaties, including abolishing the exemption-with-progression method to introduce or leave the tax credit method. The practical impact of these changes affects the double tax avoidance methods used by Polish workers posted to such countries as:

  • Austria and Slovenia with respect to income derived as of 1 January 2019,
  • UK, Ireland, Finland, Lithuania, Slovakia, Japan, Israel and New Zealand with respect to income derived as of 1 January 2020,
  • Belgium, Denmark, Norway, Portugal and Canada with respect to income derived as of 1 January 2021,
  • Jordan with respect to income derived as of 1 January 2022.

The combined impact of both those changes will likely mean that:

  • there will be more taxpayers using the tax credit method after the method change in the applicable tax treaties in accordance with MLI,
  • as a result, more and more taxpayers will seek to use the abolition relief, which currently allows for a significant reduction in the annual tax amount in Poland,
  • but due to the abolition relief limitation, the amounts taxpayers will have to additionally pay together with their annual returns will be much bigger than before.

It is therefore advisable to review posting terms for your employees to check if they continue to reflect your original arrangements with them, now that the law has changed.

If these issues pertain to your business and you are interested in our assistance, please contact your WTS&SAJA consultant.

Doradztwo Podatkowe WTS&SAJA Sp. z o.o.

Bałtyk Building, 13th floor

ul. Roosevelta 22

60-829 Poznań

tel. (+48) 61 643 45 50

Warsaw Office

Central Tower, 22nd floor

Al. Jerozolimskie 81

02-001 Warszawa

This Newsletter is provided for general information purposes to keep you up-to-date with changes in tax law, tax rulings by authorities, case law of courts and interesting commentaries. Doradztwo Podatkowe WTS&SAJA shall not be held legally liable for any acts or omissions resulting from reliance on such information.