Individual - Significant developments

Last reviewed - 13 July 2021

Personal income tax (PIT)

Lower tax rate and increased deductible costs

In October 2019, the amended PIT provisions entered into force. The Polish legislature reduced the first tax bracket from 18% to 17%, increased the tax-deductible costs, and changed the calculation of the tax-free amount.

Exemption from PIT for persons under 26 years of age

According to the amendment to the PIT Act, which was introduced on 1 August 2019, income earned by individuals under the age of 26 is exempt from PIT. The exemption is limited and may apply to revenues not exceeding the first threshold of the tax scale, which is 85,528 Polish zloty (PZN).

The exemption applies to the income from employment and mandate/freelance contracts. As of 2021, it also applies for income from graduate internships and student internships. The exemption does not apply to the persons earning income from other titles (e.g. business activity, sale of the shares), as well as income taxed with a flat rate tax.

A surplus of over PLN 85,528 is subject to taxation on general terms, using a progressive tax scale (17% and 32%).

It is important to note that this exemption is calculated automatically; however, the taxpayer may require the tax remitter (e.g. employer) to withhold PIT on a monthly basis.

Increase in taxation of the income from work performed outside Poland (limitation of the abolition relief)

The abolition relief applies to taxpayers who are Polish tax residents and who obtain income in a state for which the appropriate method of avoiding double taxation is the proportional deduction method (so-called 'tax credit method'). The tax abolition relief used to lead to the situation where income obtained outside Poland was fully exempt from taxation in Poland, and its amount may only have had a certain impact on the tax rate paid on the Polish-sourced income.

The adopted amendment introduces changes in the PIT law concerning the limitation of the application of the abolition relief, which may result in a significant increase in taxation for the Polish tax residents who obtain income outside Poland. According to the PIT act, as of 2021, the application of the relief is limited to an amount not exceeding PLN 1,360. However, this limitation does not apply to people who work offshore (i.e. seafarers).

Changes in the lump sum taxation rules

Lump sum tax on registered revenues is a simplified form of income taxation. The tax base is the revenue, so the costs are not deductible. However, up to 2020, only a small group of taxpayers could benefit from this form of taxation.

The Ministry of Finance (MoF) wanted to increase the attractiveness of lump sum taxation and broaden the group of taxpayers who are able to use this solution. Consequently, the revenue limit entitling to apply the lump sum tax is raised. As of 2021, it amounts to EUR 2 million, instead of the previous EUR 250,000. The lump sum tax rates were also reduced. Since 2021, the highest rate is 17% (instead of 20%). 

Importantly, from 2021, in some cases, a lump sum on revenues can also be paid by landlords as a part of business activity. The lump sum for most rental services and accommodation-related services has been unified at 8.5% (12% when revenues exceed PLN 100,000).