The most important employee taxes include social security contributions and personal income tax (PIT).
Social security
Both the employer and the employee are obliged to contribute to the Polish social security system. The contributions are calculated on the employee’s gross revenue. Starting from 1 January 2008 the social security burden is split as shown in the following table:
SOCIAL INSURANCE IN POLAND IN 2008
DIVISION OF THE CONTRIBUTIONS
(applicable as of 1 January 2008)
|
| TYPE OF INSURANCE |
TOTAL PERCENTAGE RATE |
EMPLOYER’S PART |
EMPLOYEE’S PART |
| Pension1) |
19.52 % |
9.76 % |
9.76 % |
| Disability1) |
6.00 % |
4.50 % |
1.50 % |
| Sickness |
2.45 % |
- |
2.45 % |
| Accident |
1.80 %2)/(0.67 %–3.60 %)3) |
1.80 %2)/(0.67 %–3.60 %)3) |
- |
| Labour Fund |
2.45 % |
2.45 % |
- |
| Employee Guaranteed Benefits Fund |
0.10 % |
0.10 % |
- |
| Total |
32.32%2)/(31.19%–34.12 %)3) |
18.61%2)/(17.48%–20.41 %)3) |
13.71 % |
1) Contributions paid on gross earnings up to annual cap of PLN 85,290 (approx. EUR 23,890).
2) Employers, which employ up to 9 employees.
3) Employers, which employ above 9 employees – percentage rate depends on type of economic activity.
|
The footnote
1) in the above table implies that the social security burden, levied both on the employer and the employee, drops substantially, when the gross salary exceeds the annual cap of PLN 85,290 (approx. EUR 23,890). Namely, the employer’s overall burden is then reduced by 14.26 percentage points and the employee’s overall burden is reduced by 11.26 percentage points.
From the administrative point of view, it is the employer that is obliged to pay its own share of the social security contribution as well as to withhold and remit the employee’s share. The payments are made each month to the Social Security Board (ZUS) based on a“pay as you earn system” (PAYE).
It should be noted that expatriates from the EU countries are entitled to exemption from social security contributions under the EU regulations. The basic condition is that an E101 certificate has to be obtained in the expatriate’s home country.
Personal income tax (PIT)
Tax rate
Polish personal income tax is a progressive one. Currently (in 2008), it is collocated based on the following table (EUR 1 = approx. PLN 3.57):
| Income brackets (in PLN) |
Income tax |
| up to 44,490 | 19% minus 586.85 |
| 44,490 - 85,528 | 7,866.25 + 30% for the amount above 44,490 |
| above 85,528 | 20,177.65 + 40% for the amount above 85,528 |
A much more favourable rate applies to individuals running business activities as sole traders or partners in partnerships. These individuals can, subject to certain reasonable conditions, opt for a flat 19% income tax rate. Due to the above flat rate as well as other rules applicable to this type of income, taxation of individual (non-corporate) businesses is based on similar provisions as described in the previous subchapter on corporate income tax (CIT).
It shall be noted that the rates shown above (including the flat 19% rate for individual businesses) are effectively increased by 1.25 percentage points due to the additional health care contributions (they were not discussed in the social security section).
Tax collection
Though in principle PIT (including tax on salaries) is calculated on annual income, its collection is based upon the monthly advance payments, i.e., the “pay as you earn” (PAYE) system.
Tax base
The tax base is defined as aggregated income from all taxable sources. In turn, income from a particular source is a difference between taxable revenue from such a source and the corresponding tax-deductible cost. In the case of numerous sources of income, tax-deductible costs are recognised in the amount of a standard deduction. For example, in 2008 income from using copyrights is subject to the standard deduction at 50% of revenue; service contracts (with no copyrights involved) are subject to the standard deduction at 20%; employment contracts are subject to the standard deduction of PLN 111 (approx. EUR 31) per month.
Residency and its implications
In 2008 a Polish PIT resident is defined as a person who: 1) has a centre of personal or business interests (a life interest centre) within the territory of Poland, or 2) spends in Poland more than 183 days in a year. It is enough to satisfy one of these conditions to become a Polish resident.
Polish tax residents pay Polish personal income tax on their worldwide income. Double taxation issues are resolved based on the relevant Double Tax Treaty; if no Treaty applies to a particular case double taxation is avoided based on domestic provisions (generally, income tax paid abroad can be proportionally credited against Polish PIT liability).
Non-residents are subject to Polish tax on their Polish-sourced income only. Furthermore, in numerous cases, non-residents can benefit from a 20% flat tax rate calculated on their revenues (i.e. with no deduction of costs). The above flat tax applies to various sources of income, including management fees (but not to employment contracts).
