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

Changes after January 1, 2021

– The full value of the cancellation allowance can still be deducted in the 2020 tax return filed by the end of April of this year. The change relates to income earned after January 1, 2021. As a result of the changes, it can be expected that many taxpayers will decide to transfer their tax residency abroad permanently, at the discretion of Rafael Fritzik, tax advisor, project manager in the tax advisory division of EY Polska.

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

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 ( Method 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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The purpose of commuting the penalty

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 convenient for the taxpayer – especially if the tax paid abroad is lower than in Poland for various reasons – the tax advisor explains.

The purpose of the cancellation allowance is to compensate for the differences between the two methods so that persons who earn income abroad, when applying the proportional deduction method, do not have to pay additional tax in Poland. The expert said that additional input tax deduction is allowed in Poland.

The change introduced from 1 January 2021 limits the cancellation to the amount of PLN 1,360 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.

Who can lose?

The change will particularly affect people who work, for example, in the United Kingdom, the Netherlands, Belgium, the United States of America, Russia, Norway, Denmark or another country, if the double taxation avoidance agreement stipulates the so-called proportional credit method – calculation EY Representative.

Fricek believes that people who work in countries with which Poland has not signed an agreement to avoid double taxation at all, for example in Brazil, may also lose.

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As he told, the change will not affect working people, among others in Germany, Spain, France or Italy, because in the case of these countries, the avoidance of double taxation is the exemption of taxable income in Poland. He stressed that the unlimited relief of cancellations could still be settled by people working outside the country’s wildlands, such as seafarers.

The possibility of deducting the tax paid abroad

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

– If a tax is paid abroad, it can be deducted from the Polish tax. However, if the tax imposed abroad is lower than the Polish tax for various reasons, for example due to lower tax rates, an increase in the tax-exempt amount or additional exemptions and deductions abroad, and the difference exceeds the limit of 1,360 Polish zlotys, then you will have to pay tax Additional in Poland – the expert explained.

PAP, PR24, akg