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Poland: Personal income tax changes

In recent months, the Polish authorities have introduced two changes to taxation of employees that provides relief and a reduction in taxes. These changes apply to both local Polish employees and international assignees, deriving tax cost savings both to individuals and employers.

Reduced income tax rate

On 1 October 2019, the lower-bracket personal income tax (PIT) rate of the progressive scale became applicable for employees in Poland. This now requires taxpayers earning up to the threshold of 85,528 PLN to pay tax at 17%, a 1% deduction from the previous 18% rate. The 32% PIT rate on earnings over 85,528 PLN remains unchanged.

These changes affect individuals and entrepreneurs who generate revenues from non-agricultural activities sources and do not pay income tax at either the flat rate (eg temporary job agency workers) or lump-sum taxation (eg sole traders).

Taxation base Tax rates as of October 2019
Over  Up to  
  85,528 17% minus the amount decreasing tax
85,528   PLN 14,539.76 + 32% on the surplus over PLN 85,528.00

Tax deductible costs

In addition to reduced tax rates, the Polish authorities also introduced new amounts of tax deductible costs for employees working under an employment contract. Tax deductible costs have increased from 111.25 PLN per month (1,335 PLN per year) to 250 PLN per month (3,000 per year), a significant increase recognizing increased earnings across Poland.

Amounts of tax deductible costs also changed for taxpayers working away from their place of residence. The respective deductions will increase to 300 PLN per month (3,600 PLN per year). New limits also apply to employees with more than one employment, with tax-deductible costs increased to 4,500 PLN per year.

Tax exemption for employees under 26

From 1 August 2019, a broad tax incentive was introduced for employees under the age of 26. This law states that earnings of individuals under 26 years old will not be subject to taxation at all and the 17% rate is in effect, 0%. However, income over the threshold of 85,528 PLN per year will be taxed at the current tax rate of 32%. Previously the limit of revenues covered by the exemption was only PLN 35,636.67. It is important to note that the new law does not only apply to Polish citizens and accordingly, any qualifying individual up to 26 years old can benefit from this relief, irrespective of their country of origin.

The amendment to the tax law applies to employees in a service relationship, employment relationship, outwork, cooperative employment relationship and revenues from most contracts of mandate. Other taxpayers who generate revenues from sources, eg non-agricultural activities or contracts for specified work, are not able to benefit.

For companies with globally mobile employees working in Poland, this is a welcome reduction in employee income tax burdens. Employers with tax equalized employees may find scenarios where less highly compensated employees may have no or a considerably reduced tax cost to the business. This may furthermore reduce the monthly tax administration burdens associated with employees of non-Polish businesses working on assignment in the country. The amended tax law for employees under 26 years old, in addition to deductions for employee costs, potentially results in annual tax savings in excess of US$3,500 per employee. This tax cost saving may be effectively deployed to offset other assignment costs.

For further information, please contact:

Malgorzata Samborska, Lukasz Boszko or Michal Rodak, Grant Thornton Poland

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