The “repatriation relief” and exit tax
If you change your tax residence, you should consider the so-called exit tax, which may affect you in future when you choose to move your tax residence abroad. As we point out in the article entitled Szykuje się zimny prysznic dla Polaków zarabiających za granicą. Co dalej z ulgą abolicyjną? / A damper now in store for Poles earning their living abroad - will the abolition deduction survive?, under the PIT Act tax on income from unrealised profits is chargeable when a taxpayer with the unlimited liability to tax in Poland changes their tax residence, the result being that Poland is denied the right to charge tax, whether in whole or in part, on the sale of the taxpayer’s asset in connection with their domicile being relocated to another jurisdiction. Hypothetically then, if the taxpayer finds out that their return to Poland is not advantageous and would like to change their tax residence country again, they may be liable to pay exit tax.
Foreign lump-sum tax – another incentive to prompt change of tax residence
The lawmaker offers another specific solution to those seeking to move their tax residence to Poland if their assets reach extraordinary levels, namely the so-called foreign lump-sum tax. To put it briefly, a foreign national or a Pole who has been (tax) resident in another jurisdiction for at least 5 years during the recent 6-year period and continues to earn incomes from that jurisdiction after repatriating to Poland will be in a position to pay tax on such incomes which corresponds to a fixed sum of PLN 200,000 per annum.
This preferential tax scheme will be restricted to revenues earned abroad, namely revenues Poland would not have been in a position to tax if the taxpayer had not moved their tax residence. This scheme will continue to be available for the purpose of reporting taxpayers’ foreign incomes in Poland over as many as 10 years (!) from the point of moving their tax residence.
Importantly, one of the conditions for claiming the lump-sum tax will be that a person must invest in projects in areas such as economic growth, science and education development, protection of cultural heritage or promulgation of physical culture in line with the requirements set out in a separate implementing regulation, with the annual mandatory investments totalling PLN 100,000.
The other conditions applicable for those seeking to benefit from these rules include filing a once-only statement on the election of this tax scheme along with a certificate of tax residence or other certificate documenting a taxpayer’s tax residence in the relevant period preceding the tax year in which the taxpayer moved their tax residence to Poland.
As the foreign lump-sum tax is an option for those who hold assets of significant value, the group of those wishing to benefit may prove small in number (e.g. football players or celebrities). It is advisable to find out what level of incomes makes the option worth considering.
Are the solutions offered to those moving their tax residence likely to become popular?
Poland is seeking effective ways to attract new taxpayers and expand its taxpayer base within the shortest possible time. Do tax reliefs such as the “repatriation relief” or the foreign lump-sum tax augur well for the plan?
It seems that the bill embodies the intention to meet halfway not only with professional employees and entrepreneurs but also foreign companies that may consider setting up their branches in Poland. Since the preferential tax schemes will be available over several years not only to “Polish repatriates”, it seems that the first taxpayers willing to relocate will not be hard to find. The “repatriation relief” as it is now may also prove an important incentive for employers which co-fund their employees’ or subcontractors’ tax burdens, as the change of tax residence and moving it to Poland would enable them to generate quantifiable savings. For this reason, with the “repatriation relief” scheduled to come into force as early as 1 January 2022, it is advisable to assess your situation now (both individuals and employers) so that you can make informed decisions on your business growth plans in Poland.