This year, Poles who work, for example, in the UK or the Netherlands will benefit from the full amount of cancellation allowance, but in the 2021 adjustment it will be limited, EY’s Rapai Vricek explains. In his opinion, many taxpayers can permanently transfer their tax residency abroad.

It is about adjusting the cancellation allowance, effective January 1, 2021, which limits it significantly.

“The full value of the cancellation allowance can still be deducted in the tax return for 2020, submitted by the end of April of this year. The change applies to income earned after January 1, 2021. As a result of the changes introduced, many taxpayers can be expected to decide to transfer Their tax stay abroad is permanently “” – says Rapai Vricek, tax advisor, project manager in EY Polska’s Tax Consulting Department.

As mentioned, the cancellation relief applies to tax residents in Poland, that is, people who have so-called center of personal interests (such as immediate family) or economic interests (such as business), or stay in Poland for more than 183 days during the calendar year and at the same time obtain On part or all of their income abroad and to tax it.

Frączyk explained that according to applicable law, there are two ways to avoid taxing income in two countries at the same time – either by deducting the tax paid abroad in the Polish return (proportional deduction method) or by exempting income earned abroad from taxes in Poland ( Way exceptions with progress). However, in the latter case, the amount of income earned will affect the tax rate resulting from the step-scale by 17-32%.

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Which of the above methods is applicable in a particular case is determined by the Double Taxation Avoidance Agreement that Poland has entered into with a particular country.

“Due to the calculation method, the latter method is more beneficial to the taxpayer – especially if the tax paid abroad for various reasons is lower than in Poland” – explains the tax advisor.

“The purpose of the cancellation allowance is to compensate for the differences between the two methods, so that when applying the proportional deduction method, people who earn income abroad do not have to pay an additional tax in Poland. It allows for the application of an additional tax deducted from the input tax in Poland” – the expert said.

The change introduced from 1 January 2021 limits the cancellation to 1360 PLN per year. According to Frączyk, in practice this means that in many cases Polish taxpayers will have to pay tax to the Polish tax office on their earned income and taxes abroad.

“The change will particularly affect people who work, for example, in the United Kingdom, the Netherlands, Belgium, the United States of America, Russia, Norway, and Denmark, due to the fact that their closest families are still living in Poland. Or another country, in the case that In which the double taxation avoidance agreement provides for the so-called “proportional credit method” – the EY representative is calculated.

“People who work in countries with which Poland has not signed an agreement on the avoidance of double taxation, for example in Brazil, can also lose,” says Fr فczyk.

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As I inform, the change will not affect working persons, for example in Germany, Spain, France or Italy, because in the case of these countries, the avoidance of double taxation is exemption of taxable income in Poland. He noted that the unlimited cancellation allowance could still be settled by people working outside the country’s land territories, such as seafarers.

When asked about the practicalities of reducing the exemption, the tax consultant explained that if the proportional deduction method is applied, the taxpayer will have to show all income earned abroad and add it to the income tax in Poland.

“If the tax is paid abroad, it will be deducted from Polish taxes. However, if the tax imposed abroad is lower than the Polish tax for various reasons, for example due to lower tax rates, higher tax exempt amount or additional exemptions and deductions abroad,” And the difference will exceed the maximum of 1,360 Polish zlotys, you will have to pay additional tax in Poland, ” Frączyk explained. (PAP)

Author: Marcin Musiał

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