The tax authorities in Poland have introduced an ‘exit tax’ from 2019 that will impact on both companies and individuals. The tax will be incorporated into both corporate and personal income taxes and will need careful consideration. Due to a lack of clarity on how the law applies in many circumstances, Polish taxpayers should proactively review the potential impact to them ahead of any change in tax residency or asset movement.
The introduction of an exit tax is intended to address assets with a value exceeding PLN4 million (approximately USD1 million). It applies where the Polish tax authorities lose taxing rights as a result of a taxpayer changing their tax residency or moving assets from Poland to another country.
Consideration is given to whether potential future capital gains that would have been realised (if the transfer had not taken place) would no longer fall within the scope of Polish taxation. Importantly, the exit tax regulations may apply to both employees leaving Poland to work abroad and foreigners assigned to work in Poland who, after the end of their assignment or employment in Poland, depart to another country. The tax additionally applies to all relevant assets an individual owns, including those acquired prior to arrival in Poland.
Two rates, 3% or 19%, apply for the exit tax depending on the circumstances. The lower rate applies when the tax value of an asset cannot be determined. For example if according to separate provisions, the tax deductible costs on a transfer of an asset cannot be determined.
In practice, the most common tax rate will be 19%. Individual taxpayers will be liable for exit tax at a rate of 19% where they transfer business assets. For non-business assets, the exit tax will apply only to stock and securities where the individual has been resident in Poland for at least five tax years. A 3% tax rate will apply on the market value of the asset.
Where there is a change in tax residency, the following assets will be subject to exit tax law:
- rights and obligations in a partnership
- shares in a company
- stock and other securities
- derivatives and certificates.
For senior executive employees undertaking international assignments to and from Poland, care should be taken to plan for the impact of the exit tax. Employers should review their assignment, relocation and tax policies to determine whether any additional tax cost impact the business, and how to support impacted employees in managing additional tax burdens arising from undertaking an international role. As further guidance will follow, careful review should be completed on a case-by-case basis to determine the potential impact of the exit tax.