Companies in Poland are subject to taxation based on residence. This means that a company or partnership is a tax resident in the country if it has its management in Poland (or its registered seat). Resident business entities are taxed on their worldwide income while non-resident companies or partnerships only on their Polish-source income. Resident Polish companies that derive income from a foreign source are subject to the same corporate tax in most cases, unless a tax treaty includes different provisions for the given situation.
Branches and subsidiaries of foreign companies in Poland are taxed much in the same way, with the same corporate income tax applicable to branches (only on their Polish-derived income).
The main taxes in Poland that are taken into consideration before setting up a company here are the following:
the corporate income tax: this has a standard value of 19% and a reduced rate of 9%; the same applies to branches;
the value-added tax: with a standard rate of 23% and reduced rates of 8%, 5% and 0%;
the withholding tax: 0% on dividends when paid by a Polish resident company to another resident company or 19% when paid to a resident individual;
other taxes: the capital gains tax of 19% and social security contributions amounting to approximately 35% of the employee’s salary (out of which the employer pays approximately 21% and the employee is responsible for 14%).
The general list of taxes on corporations also includes the real property tax, the transfer tax and stamp duty. There is no payroll tax or worth/net wealth tax in Poland. The excise tax is charged in case of a number of selected goods and shipping companies in Poland have the option to choose to pay the tonnage tax in case of certain types of income. Companies that are involved in the excavation of silver, copper or natural gas (among others) are subject to a special tax.
Our Polish lawyers discuss these main taxes in more details below as well as list a set of mandatory accounting and reporting requirements for companies.
Understanding the tax rules is an important step before starting the company formation process in Poland and the country does offer a low corporate income tax rate, compared to those applicable in Western European countries. Local and foreign investors who are in need of tax counsel, as well as legal advice pre- and post-incorporation, can reach out to our lawyers if they have any questions.
The legal basis for paying taxes in Poland
The legal basis for the tax liability in Poland is effective from 17 October 1997 and it is established by the Polish Constitution in the Article 217 which provides that imposition of taxes and other public charges and determination of taxable entities subject to tax payment in Poland, tax rates, categories of taxpayers exempted from paying taxes in Poland and the rules for granting tax reliefs and remissions can occur only by the laws and regulations established by the state.
The Polish tax system consists of twelve tax titles, which are defined as public, unpaid, compulsory and non-returnable funds to the state treasury, state, county or municipality. The provisions of the Tax Code also apply to fees and other non-tax duties for the state budget and the budgets of local governments, which are authorized by the tax authorities and regulated by rulings on local taxes and fees.
The Polish tax system registered an accelerated development in the past 25 years. This decision taken by the Polish government was taken with the purpose to encourage foreign investments and increase the employment rate. Among the measures taken to reach this objective, Poland has reduced the income tax from 40% to 19% reaching an indicator among the 5 lowest in Central and Eastern Europe.
Companies that must pay these taxes in Poland are the following:
corporations in formation;
tax capital groups;
limited liability companies, joint-stock companies and other legal entities;
organizational units without legal personality except for companies without legal personality;
companies without legal personality with offices or management boards in another state.
Starting with January 1, 2021, limited companies as well as joint-stock companies that are wholly or partly owned by individuals are able to apply for a flat tax rate that will be available for four years. This taxation scheme is subject to additional requirements that can be detailed by our lawyers in Poland. We list the main types of regulations below:
Operating revenue: the value for the previous tax year cannot exceed 100 million PLN, including VAT;
Passive income: the condition is for this type of income to amount to less than half of the total revenue (examples of passive income include interest, royalties, guarantees, etc.);
Direct investment expenditure: increase by 15% (no less than 20,000 PLN) in two consecutive years or 33% (no less than 50,000 PLN) in four consecutive years;
Company conditions: maintain an average number of at least three employees and have monthly expenses of at least three times the average monthly salary in the business sector in which it activates.
Please keep in mind that these conditions are only briefly outlined above and that others may apply. The flat tax rate available to eligible companies is 15% of the tax base for small taxpayers or 25% of the tax base for other taxpayers. These rates can be further reduced by 5% when the company has an investment expenditure increased by 50% over a two-year period or by 110% over a four-year period.
Our Polish lawyers can give you more details about the corporate tax and about the process of paying taxes in Poland.
VAT in Poland
The standard Polish VAT rate is 23% since 2011. As in many other countries, Poland also applies VAT exemptions for various services like postal and financial ones, and also reduced rates of 8% and 5% for certain food, books, newspapers and others. However, contributors have the possibility to apply for VAT refund by submitting an application to the Tax Authorities.
Dividend tax in Poland
The Polish dividend tax is 19%. This rate applies to the gross dividend amount. Dividends received by Polish companies from another Polish company or a company operating in the EU/EAA area and/or Switzerland are exempt from taxation if they fulfil certain conditions.
According to the Polish participation exemption, Polish companies are exempt from the withholding tax on dividends if the receiver of the dividends resides in another EU country and pays the relevant taxes on its worldwide income. Also, the company receiving dividends must hold at least 10 percent of the shares of the dividend payer company for at least two years, uninterrupted.
Other provisions for dividends taxation in Poland
Poland has signed double taxation treaties with more than 80 countries in order to guarantee that companies are protected from double taxation. These treaties also influence the taxation of dividends. One of the benefits included in double taxation treaties is a reduced withholding rate for dividends, interests, royalties and capital gains.
Poland also has a Parent-Subsidiary Directive for companies. According to the provisions of this directive, dividends paid between related EU companies are benefit from a participation exemption. Our incorporation agents are at your disposal for more details about this directive or about the types of taxes in Poland.
Incentives for foreign investors in Poland
Entrepreneurs that decide to invest in Poland can choose the Special Economic Zones (SEZ). These are specific areas where the Polish government has implemented programs meant to attract foreign investors and increase the region economic development. Basically SEZ represent the result of successful connections between the needs of these regions and the wishes and needs of foreign investors. Therefore, a new company with foreign capital can benefit from income tax and local taxes exemptions, employee training, and financial grants for new investments and for the creation of new jobs. The respective company must receive a permission to begin trading in an SEZ from the management board of each zone and can also receive assistance related to the investment process.
We invite you to watch a short video about the tax regime in Poland:
Compulsory contributions to social insurance
Social insurance in Poland include pension, disability, sickness and maternity funds. Health insurance is mandatory in case of illness, accident, injury, poisoning, life threatening conditions. In order to benefit from this insurance, both employer and employee must pay contributions arising from the insurance contract, regulated by the National Health Fund (NFZ). The amount of social security that must be paid is approximately 35% of the employee’s wage (paid partly by the employer and the rest by the employee). The contributions made by the employee are withheld by the employer and remitted together with his part of the contribution. In addition to social security, the employee is also required to submit a 9% healthcare contribution (also collected by the employer).
Special rules for social security contributions purposes apply in case of self-employed individuals and our lawyers in Poland can provide you with more details.
Real estate tax
When paying taxes in Poland, the real estate tax must be taken in account. The real estate tax in Poland is a local tax, levied by local governments and it is applied for owners of land, buildings or parts of buildings, buildings or parts associated with running a business.
Real estate tax payers are individuals or legal persons, organizational units, including companies without legal personality, which are owners of real estate or buildings, holders of the intrinsic property or buildings, users of perpetual land and other particular categories provided by the law.
Other taxes in Poland
The withholding tax on interests and royalties was established at 20% unless the company can take advantage from the benefits double tax treaties signed by Poland. For branches it is not required to pay a remittance tax. For sea and air transportation services companies must pay a fax in quantum of 10%.
Taxation compliance for companies in Poland
The tax year is generally the same as the calendar year or another 12-month period. Taxpayers need to self-assess and make advance income tax payments during the year (based on calculations from the previous tax year). The final tax calculation is made within three months of the end of the tax year. Failure to comply to the regulations in force results in penalties and the company’s board members can also be subject to penalties for noncompliance.