0 © 2006 KPMG Tax Sp. z o.o., the Polish member firm of KPMG International, a Swiss cooperative....

1© 2006 KPMG Tax Sp. z o.o., the Polish member firm of KPMG International, a Swiss cooperative. All rights reserved. This document is confidential and its circulation and use are restricted.

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AmCham Tax Session

Warsaw, PolandWednesday, November 15th 2006

AmCham Tax Session

Warsaw, PolandWednesday, November 15th 2006

I N T E R N A T I O N A L E X E C U T I V E S E R V I C E S

T A X

Personal income tax – 2007Personal income tax – 2007New residence rules and associated expatriate issuesNew residence rules and associated expatriate issues

Presented by:Presented by:

Andrzej Marczak, Partner, doradca podatkowyAndrzej Marczak, Partner, doradca podatkowy

Jan Jodłowski, Senior Manager, radca prawnyJan Jodłowski, Senior Manager, radca prawny

Mateusz Kobyliński, Senior Manager, doradca podatkowyMateusz Kobyliński, Senior Manager, doradca podatkowy



OVERVIEW

1. Tax residence in Poland

Current rules vs. changes for 2007

2. Other key changes affecting expatriates



ACT AMENDING THE PIT ACT

Passed by Sejm on 27 October 2006

Resolution of the Senate introducing amendments passed on 9 November 2006

Sejm shall debate the Senate’s amendments between 14 and 18 November 2006

The President should sign the act and it must be published by 30 November 2006



TAX RESIDENCE – 2006 vs. 2007



ESTABLISHING TAX RESIDENCE - 2006

General rules:

Unlimited tax liability – place of residence in Poland. World-wide income is subject to tax in Poland regardless of where the source of income is located.

Limited tax liability – no place of residence in Poland. Only income from Polish sources is subject to tax in Poland. Place of residence abroad not needed?




Place of residence for tax purposes

Definition of a place of residence according to Polish regulations (?)

Intention of a permanent stay;

Physical presence;

Question of registration (meldunek).




Place of residence for tax purposes

Entirety of circumstances connected with particular individual;

House/apartment, family, employer, property, social, economic, and cultural connections;

Every case should be assessed individually;

Permanent residence card;

Work permit, contracts.



ESTABLISHING TAX RESIDENCE – 2006

Practice of tax authorities:

Requesting a foreign tax residence certificate

Exchange of information with foreign tax authorities

US expats:

US tax residents: automatically non-resident in Poland?



TAX RESIDENCE - NEW RULES FOR 2007

General rules:

Unlimited tax liability – place of residence in Poland. World-wide income is subject to tax in Poland regardless of where the source of income is located.

Limited tax liability – no place of residence in Poland. Only income from Polish sources is subject to tax in Poland:-income from work performed in Poland regardless of where paid,

- income from personal services performed in Poland regardless of where paid,

- income from business activity performed in Poland regardless of where paid,

- income from the real estate in Poland (including income from sale)




Definitions:

An individual having a place of residence in Poland:

- centre of vital interest in Poland (centre of economic OR personal interest),

OR

- duration of presence in Poland more than 183 days in a year.

An individual NOT having a place of residence in Poland:

- centre of vital interest not in Poland (centre of economic OR personal interest) and duration of presence in Poland less than 183 days in a year,

OR

- foreign certificate of residence if duration of presence in Poland more than 183 days in a year.




Issues of concern:

Implications for individuals

Civil Code definition no longer applicable?

Obtaining foreign certificates of residence

Migrating residence

Course of action to be taken - solutions




Implications of becoming a resident:

change of tax office

taxation of world-wide income in Poland

no possibility of applying preferential flat rate of 20 percent




Civil code definition vs. new definition in PIT regulations:

Should not be directly applied – tax regulations now include a definition of an individual having a place of residence in Poland

Criterion of ‘intention’ now effectively replaced by ‘centre of vital interest’

Definition of what a ‘centre of vital interest’ is:

centre of economic OR personal interest

Application of double tax treaty definitions?




Foreign certificates of residence:

Possibility of obtaining a certificate of residence in a foreign jurisdiction

No double tax treaty with country of residence = problem




Migrating residence:

Possibilities?

Neighbouring countries:

Slovakia

Baltic states

Ukraine

Germany




Escaping Polish tax residence:

Maintaining a centre of vital interest not in Poland and remaining in Poland for less than 183 days,

Obtaining a certificate of tax residence from a country with which Poland has a DTT




Choosing a country to obtain a certificate of residence:

If credit method is applied under DTT - country with lower tax rate is preferable

If exemption with progression method is applied under DTT – level of tax rate should not make a significant difference




What if one becomes a resident in 2007?

non-resident in 2006:

only Polish source income is taxable in Poland

20 percent tax on management board fees, civil law contracts etc.

resident in 2007:

no action – becomes subject to progressive taxation

civil law contract – effectively up to 32 percent tax (except management services)

business activity – election for 19 percent rate

transfer of copyrights – 50 perent costs of earning income




Other options:

Offshore structures – e.g. Cyprus

Advance payments in 2006

Loan / bonus schemes

In-kind supply of shares



FILING REQUIREMENTS 2007



FILING REQUIREMENTS

Foreign employment income:

Monthly compliance obligations

No tax returns

Calculations and payments

Documentation?



FILINGS

Changes:

Monthly tax advance payments without a declaration

no more PIT-4, PIT-8A, PIT-53

Annual group declaration to be filed by tax remitters (e.g. employers) by the end of January of the following year

Annual individual information forms (PIT-11/8B) – no changes

Deadlines for payments unchanged



SALE OF REAL ESTATE



SALE OF REAL ESTATE

To date:

Taxable if property is sold within 5 years from the end of the year during which it was acquired

10 percent tax on proceeds from sale

Exemption - declaration of using funds to acquire other property in Poland within 2 years

Costs of transaction deductible

Applicable to property acquired before 1 January 2007



SALE OF REAL ESTATE

2007:

Taxable if property is sold within 5 years from the end of the year during which it was acquired

19 percent on income from sale

Costs of acquisition deductible

Exemptions – ‘meldunek’ for 12 months prior to sale (if sold within five years)

Applicable to property acquired after 1 January 2007



NEW CONCESSIONS



NEW CONCESSIONS

2007:

child deduction – PLN 120 per child deductible from tax

1 percent payments to organisations for advancing the public good now executed via tax office

30 percent of statutory per diems for individuals deriving income for work outside Poland



OTHER CONCESSIONS

Changes:

Alimony payments exempt:

for chlidren up to age 25

for other persons up to PLN 700 per month



RESCINDING OF CONCESSIONS

Some concessions will no longer apply:

Exemption of income from the sale of real estate acquired in the form of inheritance or donation

Deductibility of interest on mortgage loans



NEW TAX SCALE



TAX SCALE FOR 2007

Increased thresholds (all figures in PLN):

Taxable base Tax

over up to

43 405 19 percent less 572,54

43 405 85 528 7 674,41 plus 30 percent on excess over 43 405

85 528 20 177,65 plus 40 percent on excess over 85 528



DEDUCTIBLE COSTS OF EARNING INCOME

Applicable to, among others, employees:

standard costs of PLN 108,50 per month (PLN 1302 per annum)

up to PLN 1953,23 per annum for individuals working for more than one employer

increased costs of PLN 135,63 for commuters from another town (PLN 1627,56 per annum)

up to PLN 2441,54 for commuters working for more than one employer

further changes for 2008



DEDUCTIONS

Other costs:

20 percent for civil law contract income (e.g. personal service contracts)

50 percent for income from the transfer of copyrights

Health insurance contributions deductible at a rate of 7,75 percent of the base for their calculation (total payable is 9 percent)



BUSINESS ACTIVITY



BUSINESS ACTIVITY

New definition – income NOT qualified as being from business activity if three conditions are met jointly:

service recipient bears responsibility,

services performed under the supervision and at a location and time determined by the service recipient,

the service provider does not bear economic risk associated with the activities performed.



BUSINESS ACTIVITY

Changes:

Passenger car – clearly defined

‘Small taxpayer’ – income limit for 2006 is PLN 3 180 000!

No more monthly tax declarations

Quarterly settlements



KPMG International Executive Services

Andrzej Marczak

Partner

+ 48 22 528 11 76

[email protected]

Jan Jodłowski

Senior Manager

+ 48 22 528 11 74

[email protected]

Mateusz Kobyliński

Senior Manager

+ 48 22 528 11 91

[email protected]



EXPATRIATE SESSION

Questions?

0 © 2006 KPMG Tax Sp. z o.o., the Polish member firm of KPMG International, a Swiss cooperative....

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