Poland's taxation of an individual's income is progressive. In other words, the higher the income, the higher the rate of tax you should pay. The 2012 tax rate for an individual is 18% or 32%. Individuals can choose, under certain conditions, paying a flat rate of 19% on business income without allowances. In Poland corporate tax in 2012 is 19%. The following income is exempt from tax when received by an individual: a) The sale of real estate, after it has been held for a certain period (to read more - "Capital Gains"); b) Profit on the sale of a residential apartment, on condition that the consideration is used within 2 years for the purchase of an alternative residence in Poland; c) Dividend received by one company from another company in Poland or in the EU/EEA, subject to participation rules; d) Receipts from insurance; e) Receipts from donations.

Poland Individual Income Tax

An individual pays tax on his income as a wage earner or as a self-employed person. The tax for an individual who meets the criteria of a "permanent resident" in Poland will be estimated on his income in Poland and abroad. A foreign resident who is employed in Poland pays tax only on his income earned in Poland.

An individual is a Polish resident if the center of life is in Poland, or if staying in Poland more than 183 days in a fiscal year. An employer is obligated to deduct, instantly on a monthly basis, the tax payable on an employee's salary. A self-employed person must prepay income tax that will be redress on filing an annual return. The advance payment is determined on the basis of the return made for the previous year. In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business.

Certain payments are deductible from taxable income as detailed below.

Poland Individual income tax rates 2012:

Comment: There is an initial allowance of PLN 3,091 on the lowest income bracket.

Poland's corporate tax for the year 2012 is 19%. A company is a Polish resident if registered in Poland, or managing its activities in Poland.

Poland Value Added Tax

Generally, Value Added Tax is payable at a rate of 23%. There are reduced rates of 8% and 5% for certain products and services. If the annual turnover is less than PLN 150,000, the business owner is exempt from VAT registration. Announcements must be filed monthly or quarterly with the VAT Authorities, with the report and payment being made by the 25th day of the month following the period relevant to the report. Some products and services are exempt from VAT, such as: Health services; Milk products; Insurance and banking services; Mail and stamps; Educational, art and science services; Provision of services for export.

Poland Capital Gains

In the general way, there is no special tax rate for capital gains in Poland. Capital gains are usually added to the regular income of an individual/company and based on the normal tax rates. Regardless the fact, if real estate is sold by an individual more than 5 years after it was purchased the capital gain is exempt from tax. Sale within 5 years from the date of purchase is taxed at 19%. Individual's capital gain from sale of shares is taxed at a final tax rate of 19%. In Poland dividend and interest income for individuals is taxed at 19% rate.

Poland Deduction of Tax at Source

Taxation of Employees - Social Security

Social security payments include disability insurance, sickness and accident insurance:

Note: The social security payments are subject to a ceiling.

Other Deductions in Poland

Tax is deducted at source from the following payments to nonresidents according to the table below:

Comment: The deduction at source for a dividend, royalties and interest for foreign residents is subject to the Double Taxation Prevention Treaty. Dividends received by a resident company from an EU/EEA/Polish company are exempt from deduction at source.

Reporting Dates & Payment Dates in Poland

An individual

The tax year in Poland is the calendar year ending on 31st of December. An individual whose income is only from a salary is not obliged to file an annual return. The employer who deducts income tax from the employee transfers the tax to the tax authorities each month. A self-employed individual is obliged to make 11 monthly advance payments. Each advance must be made by the 20th day of any month for the previous month (in December, an advance is paid for both November and December). The date for filing the annual return is April 30.

A Company

Payment of advances on tax is similar in the case of a limited company to that of the individual. The company is laible to file an estimated return to the tax authorities by March 31, and to pay the difference in the tax. The latest date for filing an annual return is September 30 (for the previous year).