Tax relief for return – incentive to change tax residence

Relief for return is a form of financial support introduced into Polish law by the Polish Deal amendments. The reason was to constitute an incentive for taxpayers to transfer their tax residence to Poland. The regulations came into force on January 1st, 2022.

The mechanism behind the relief for return are two benefits available to the taxpayer:

1. Temporary exemption of revenues generated in the territory of the Republic of Poland from specific tax obligations.
2. The possibility of taxing income obtained abroad in the form of a lump sum, i.e. a fixed amount that does not depend on the actual amount of the income earned.

Regarding the first benefit, an exemption can be obtained for 4 consecutive years. The taxpayer can decide whether the exemption is to start in the current tax year or the next tax year.

It should also be remembered that the relief has an upper amount limit. The taxpayer’s income may not exceed 85,528 PLN in the given tax year.

Who will benefit from the changes?

The law does not introduce unnecessary and complicated restrictions. From the moment any taxpayer transfers tax residence from any foreign country to the Republic of Poland, the regulations are in force.

The conditions to be met include the obligation of Polish citizenship, the Card of the Pole ownership, or the citizenship of a European Union Member State or a country belonging to the European Economic Area or the Swiss Confederation (other than Poland). Alternatively, documented 3 years of continuous residence in the territory of European Union, European Economic Area, Switzerland, Australia, Chile, Israel, Japan, Canada, Mexico, New Zealand, South Korea, United Kingdom of Great Britain and Northern Ireland or the United States of America.

In addition, the taxpayer must have a certificate of residence or other proof of residence for tax purposes in the period necessary to establish the right to this exemption. Last but not least: the taxpayer should have to use the relief for the first time.

Relief for return – list of exempt revenues

In the content of the Law, we can find both a list of revenues eligible for relief and those that do not meet the criteria. Non-exempt income means income that is not taken into account in the calculation of the final amount taken into account for the relief.

1. Exempt revenues:

• from a business relationship, employment relationship, outwork, and a cooperative employment relationship,
• from mandate contracts concluded outside the business activity of the taxpayer benefiting from the relief,
• from non-agricultural taxable economic activity:
  • according to the tax scale,
  • flat-rate,
  • 5% rate applied to eligible income from qualifying intellectual property rights (so-called IP-Box),
  • flat-rate income tax in the scope of lump-sum income tax on registered revenues.

2. Income not exempt:

• dividends, interest (taxed with a lump sum),
• all revenues are exempt from income tax,
• revenues for which the tax is not collected.

Relief for return, rules and restrictions

As already mentioned, the revenue amount qualifying for the relief in the tax year may not exceed 85,528 PLN. It is the common denominator of the return relief and other reliefs of the Polish Deal, as a relief for young people, for large families, for seniors. The upper limit of 85,528 PL applies to each of these reliefs if the taxpayer qualifies for more than one.

The relief can be used at the stage of collecting tax advances, after submitting an appropriate certificate of meeting the conditions, indicating the date of the relief beginning.

Lump-sum taxation – basic information

The relief also introduces the possibility of lump-sum taxation of foreign revenues. This option may be used by a person who submits a relevant declaration by the end of January of the year following the tax year. The declaration, together with the certificate of residence, can be submitted once for the entire period of the discount. At the same time, for at least 5 of the previous 6 tax years directly preceding the tax year in which the taxpayer changed residence, the taxpayer could not have a place of residence in the territory of the Republic of Poland.

The lump-sum amount is 200,000 PLN for each tax year. In the event of a transfer of tax residence, the amount is calculated proportionally

Only foreign revenues are subject to lump-sum taxation (excluding the revenues of the foreign-controlled entity).

Lump-sum – taxpayer’s obligations

Additional obligations are also associated with the choice of flat-rate taxation following these regulations. First of all, the taxpayer should independently collect evidence that will allow the tax office to determine the source of origin, amount, and dates of obtaining the income.

Secondly, the taxpayer is obliged to incur expenses for “economic growth, development of science and education, protection of cultural heritage, promotion of physical culture”. Each year the lump-sum is valid, this expenditure should amount to at least 100,000 PLN. Surpluses against this amount on an annual basis will be transferred to next year’s pool.