Abolition relief

From this article, you will learn:

• What abolition relief is?
• Who is entitled to the abolition relief and how much it is?
• What the limitation of collecting PIT advances during the year is?

The abolition relief applies to persons earning income from abroad who are subject to tax liability in Poland and use the method of avoiding double taxation – the proportional deduction method. Polish regulations allow taxpayers to take advantage of tax abolition relief to reduce the amount of tax when settling personal income tax on foreign income. 

Who is entitled to abolition relief?

The abolition relief applies to persons earning income abroad and settling taxes in the territory of the Republic of Poland. This preference applies to income that meets all of the following conditions:

• are achieved abroad;
• are subject to settlement in accordance with the proportional deduction method.

Unfortunately, the abolition relief is not applicable to all income. The sources of income covered by this relief include:

• service relationship, employment relationship, outwork and cooperative employment relationship, (Article 12(1) of the Personal Data Protection Act),
• activities performed personally (Article 13 of the Personal Data Protection Act),
• non-agricultural economic activity (Article 14 of the Personal Data Protection Act),
• property rights in the field of copyright and related rights within the meaning of separate regulations, from artistic, literary, scientific, educational and journalistic activities performed outside the territory of Poland, with the exception of income (revenues) obtained from the use or disposal of these rights.

Importantly, the abolition relief applicable in Poland applies to income earned outside the so-called tax havens, i.e. countries that practice harmful tax competition.

The above catalog exhausts the list of sources of income in the case of which a taxpayer may apply for a lower amount of tax due to the abolition relief. This means that income obtained from foreign pensions or dividends (even if they are obtained in countries that do not apply harmful tax competition) do not make it possible to take advantage of this relief when settling these incomes in Poland.

How much is the abolition relief in connection with income obtained abroad?

The maximum amount of the abolition relief is currently PLN 1,360.00. To calculate its actual value, the taxpayer should subtract the amount of tax calculated according to the exclusion with progression method from the amount of tax calculated according to the proportional deduction method. The abolition relief is deductible from income tax.

Interestingly, there is no limit on the abolition relief for certain groups of taxpayers earning foreign income outside the territory. Therefore, it will be the seamen and aircraft pilots who will benefit the most from it. 

Application of the amnesty tax relief during the tax year or in the tax return

The rule is that the abolition relief is applied in the annual income settlement. The taxpayer submits a return for the previous year on the PIT-36 form (or PIT-36S, PIT-36L or PIT-36LS) or on the PIT-28 or PIT-28S form and shows the income earned abroad and – if any – the income earned on the territory of Poland. In order to apply the abolition relief, you must additionally complete the PIT/O attachment.

It may happen – especially in the case of persons for whom the abolition relief is not limited (e.g. pilots, sailors) – that the taxpayer anticipates that as a result of applying the relief, his annual tax liability will be significantly reduced. In such a case, it is worth considering submitting an application to limit the collection of tax advances. The tax authority, at the taxpayer's request, limits the collection of tax advances if the taxpayer proves that the advance payments calculated in accordance with the principles set out in tax acts would be disproportionately high in relation to the tax due on the income or profit expected for a given tax year. This will avoid unnecessary "freezing" of funds paid for tax, which would be refundable after submitting the annual return.Thanks to this solution, you can have money at your disposal already during the year.

If you are interested in applying abolition relief or limiting the collection of PIT advances during the year, please contact us. Our experts will be happy to answer your questions.