Since 2022, regulations have been in force in Poland providing for very preferential rules for taxing foreign income for people who transfer their tax residence to Poland – the so-called lump sum on foreign income. This is a tax incentive for wealthy non-residents obtaining Polish tax residency.
Who can benefit?
The lump sum taxation may be used by a person who meets the following conditions together:
- has moved its place of residence to Poland and is subject to unlimited tax liability in Poland;
- has not had a place of residence in Poland for at least 5 out of 6 tax years immediately preceding the year of transfer of residence;
- submits to the tax office a statement on the choice of lump-sum taxation (PIT-PZ) – by the end of January of the year following the tax year in which the place of residence was transferred;
- incurred expenditure on economic growth, development of science and education, protection of cultural heritage or promotion of physical culture.
The choice of lump-sum taxation is made by submitting a one-time statement to the tax office. The statement is accompanied by a certificate of residence or other proof of residence for tax purposes.
The lump sum may be applied for 10 consecutive tax years, counting from the tax year in which the taxpayer moved his place of residence to Poland.
What income is covered?
Revenues obtained outside the territory of Poland are subject to lump-sum taxation, with the exception of revenues taxed on the basis of the CFC rules (low jurisdiction countries).
Foreign revenues are not combined with other income (revenues) subject to tax in Poland and are not reported in tax returns and books. However, this does not exempt from the obligation to have evidence necessary to determine the origin, amount and period of obtaining foreign revenues.
Foreign revenues taxed with a lump sum are not subject to the provisions governing the determination of tax-deductible costs, tax reliefs and exemptions and methods of preventing double taxation.
How much is the lump sum?
The lump sum on foreign revenues is PLN 200,000 per tax year, regardless of the amount of foreign revenues obtained in that year. It is payable by April 30 of the year following the tax year. By choosing lump-sum taxation, tax advances during the tax year are not required.
If a person has moved his/her place of residence to Poland during the year, the amount of the lump sum is determined in proportion to the number of months of being subject to unlimited tax liability in that tax year.
Required expenditures
The use of the lump sum taxation is conditional on incurring certain expenses in the amount of at least PLN 100,000 in the tax year, starting from the year immediately following the year in which the person moved his or her place of residence to Poland.
These may include expenditure on: economic growth, development of science and education, protection of cultural heritage or promotion of physical culture. The catalogue of eligible expenditures has been specified in the Regulation of the Minister of Finance and includes:
- donations made for specific purposes or to non-governmental organizations / entities conducting public benefit activities,
- expenditure incurred on the financing of sports, cultural and higher education and science activities,
- acquisition of an immovable monument,
- care of an immovable monument entered in the register, and
- acquisition of shares in an alternative investment company, if the taxpayer holds these shares (shares) continuously for a period of 2 years from the date of their acquisition.
Expenses cannot be reimbursed to the taxpayer in any form.
If the value of expenditures exceeds PLN 100,000 in a given year, the surplus is to be included in the amount of expenses incurred in subsequent tax years. By the end of January of the following year, the tax office must be informed about the fulfilment of the condition concerning the implementation of expenses by submitting a statement of incurrence of expenses together with documents confirming their incurrence.
Resignation and loss of the right to the lump sum taxation
Lump-sum taxation before the end of 10 tax years can be resigned voluntarily. A statement of resignation to the tax office is required by end of January. In such a case, lump sum taxation is not applied from the beginning of the following year.
The right to lump sum taxation may also be lost at the end of the tax year preceding the following year:
- in which the indicated expenses have not been incurred,
- where the place of residence has been transferred abroad,
- for which the lump sum for the tax year was not paid in full or in part on time.
Family members
Taxation with a lump sum on foreign income can also be used by members of the taxpayer’s family (spouse / child). In relation to a family member, the lump sum is PLN 100,000 for each tax year. Importantly, a family member is not obliged to incur the indicated expenses.
The loss of the right to a lump sum is related to the loss of this right by the taxpayer. In the event of the taxpayer’s death or loss of the status of a family member, the lump sum on foreign income for a family member is PLN 200,000 per tax year. In such a situation, the family member will be obliged to incur expenses for economic growth, development of science and education, protection of cultural heritage or promotion of physical culture
Practical conclusions
Polish lump sum on foreign revenues can be a very attractive solution. In practice, the lump sum is most often of interest to people who earn high passive income abroad (dividends, interest, capital gains, real estate rental). Before choosing it, however, it is worth calculating its real profitability in comparison with the withholding tax collected in the source country (e.g. on dividends, interest or rent). It is also crucial to correctly determine tax residence, including the risk of “double residence”. You should also remember to exclude CFC income.
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Transfer tax residency to Poland