Employment income is subject to Polish Personal Income Tax at progressive rates up to 32% (on annual income exceeding approx. 20,000 euro in 2009). Such income is generally also subject to Polish social security charges (at a rate of approx. 13% for the employee and approx.18-20% for the employer). However, expatriates may consider alternative structures to reduce their Polish tax and social security liabilities. As always, these are situation dependent (e.g. duties of the individual, needs of his employer and legal requirements). Additionally, tax implications in the expatriate‟s home country should be considered.
How can this be done? A number of structures can be considered:
20% lump-sum tax
Expatriates being Polish tax non-residents may benefit from a 20% lump-sum tax. To qualify as Polish tax non-resident, the expatriate’s place of residence and centre of vital interest must not be in Poland. This requires analysis of the individual‟s personal and economic situation (including family and property aspects). This preferential tax rate applies only to certain types on income e.g. board fees or income from a personal services or management contract. Social security may be avoided in some cases.
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A copyright structure may be implemented if the work generated by an expatriate is of a creative nature and thus subject to copyright protection (e.g. opinions, presentations, strategies, policies, procedures etc.). The expatriate can still be employed under an employment contract with this structure. The main advantage is that the income derived for transfer of the expatriate‟s copyrights to the employer is subject to a 50% deemed cost deduction. Social security costs are not reduced.
Expatriates may work for their own account and thus be engaged as contractors. In such cases, their social security costs are much lower than for employment. The basis for the contributions is notional rather than actual income. Additionally, deductions for actual costs incurred in earning revenue are not limited. Such „entrepreneurs‟ may also choose, under certain conditions, a flat tax rate of 19% instead of progressive taxation.
The company engaging such subcontractors is not required to pay social security contributions. Individual partners in a partnership may also benefit from these provisions.
Civil law contracts
Civil law contracts include personal services contracts and specific task agreements. The main advantage of such contracts is deemed deductions of 20% of revenue earned. Civil law contracts are only possible in certain circumstances and when the nature of the expatriate‟s duties justifies it. Social security charges may still be due in some cases.
Employee stock plans
Generally, income derived by employees from preferential acquisition of shares under employee stock plans is classified as employment income. However, in certain cases this income may be classified as a capital gain subject to a flat 19% tax rate. Any capital gain is not subject to social security.
Social security optimisation
Certain of the structures mentioned above reduce the expatriate‟s and employer‟s social security costs. However, social security cost mitigation can also be achieved for regular employment income by using social security exemptions based on EU regulations or bilateral agreements concluded by Poland with different countries.