2008 Tax Abolition in force soon

If in years 2002-2007 you worked in the country with which Poland had unfavorable tax agreement you will not have to pay extra tax. If you already have paid the polish tax office will pay this amount back. Obviously there will be a need to file (or correct) tax return for those years. The revenues achieved from 1st of January 2008 will be subject to the new regulations. All these changes are included in the abolition resolution project prepared by the government.

Who does the abolition apply to

According to the abolition resolution project abolition privileges will apply to persons who earned the profits abroad in the years 2002-2007 in the country with which Poland had unfavorable tax agreement about double tax evasion or in the country with which Poland did not have any agreement at all.

Unfavorable tax agreement about double tax evasion is the one in which method of proportional deduction is used. The method assumes that profits gained abroad are subject to the taxation according to the polish tax scale but at the same time tax paid abroad can be deducted.

Favorable method (exclusion with progression) means that if in Poland you do not have any incomes taxable according to the scale you do not declare foreign profits to the polish tax office. In other words the method of exclusion with progression means that income gained abroad is tax free in the tax payer’s place of residence (Poland). However, this income is taken into account in calculating the tax rate for the incomes acquired in Poland.

In practice method of exclusion with progression almost always guarantees lower level of tax charge altogether to the tax payer, which leads to the unequal treatment of the tax payers working abroad. Thus the tax abolition project was introduced to eliminate this difference in treatment.

Unfavorable tax agreements were concluded with: Great Britain (till 2006), USA, Russia, Belgium, Denmark, Finland, The Netherlands, Island and Australia.

The changes will apply to the persons that did not transfer their place of residence (so-called tax residence) abroad. The abolition and the tax allowance will not apply to the incomes gained in the so-called tax heavens like: Hong Kong, Monaco, Jersey, Man or Liechtenstein.

Tax abolition procedures

First of all there will be a need to file tax return (if somebody did not do it) or correct it (if it did not include the incomes gained abroad).

Secondly there will be a need to file a motion (on a new form PIT-AZ) for a return of an amount paid concluded on the basis of the unfavorable method (for those who already paid) or to file a motion for remission of tax arrears with the interests (for those who hid the profits and did not pay the tax).

There will be only one month to file the motion for the incomes acquired in the year 2002. For the incomes gained during the years 2003-2007 there will be six months to file an abolition motion (PIT-AZ), since the day of the resolution being valid. The motion will have to be file in the relevant tax office.

Finally to the motion for the tax return (remission of arrears) there will be a need to attach copies of the documents that confirm the profit acquisition and tax payment abroad.

The tax office has no more than six months since the filing the motion by the tax payer to make decision about remission or return of the tax.

Obviously tax amounts remised or returned will be PIT free.

Kancelaria Prawna 90-060 Łódź, ul. Nawrot 4/1, tel./fax +48 /42/ 630 58 41, tel. +48 /42/ 632 51 44,
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