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PIT for 2023. Income from abroad and PIT – Piotr Juszczyk, chief tax advisor inFakt, on two settlement methods

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At the end of April, the deadline for settling PIT for 2023 expires. “Polish taxpayers working abroad must also remember about this settlement, even if they do not earn money in the country,” reminded Piotr Juszczyk, chief tax advisor at inFakt.

Piotr Juszczyk explained that when settling foreign income, an appropriate method to avoid double taxation should be used. – Currently, there are two methods: the proportional credit method and the exclusion method with progression – he pointed out.

Proportional credit method

The proportional credit method is used in most contracts. “It means that income earned abroad is fully taxed in Poland. However, taxpayers have the opportunity to deduct the tax already paid abroad – although not always in full. The deduction is only made up to the amount of tax that would be paid on this income in Poland” – Juszczyk explained.

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Poles working in countries such as Belgium, Ireland, Great Britain or the Netherlands, as a rule, must settle this income in Poland. The tax advisor noted that there may be a situation where the tax residence changes.

“The unlimited tax liability is influenced by the number of days spent abroad and vital interest. The regulations state that we are obliged to settle all our income in the country if we stay there for at least 183 days a year. But this is not the only condition, we must also remember the taxpayer's situation,” the expert noted.

Juszczyk gave the example of a marriage in which the wife decided to work in Ireland as a nurse. Work is performed in Ireland 9 months a year, i.e. most of the year. However, my husband, children and home remain in the country, which means that my business interests are still in Poland. “In such a case, the residence will remain Polish and the income from abroad will be settled in Poland,” the tax advisor emphasized.

Shutdown method with progression

The second method – exclusions with progression – applies to income obtained in a smaller number of countries. In Europe, apart from Germany, this also includes, for example, France and Sweden. According to this method, income from abroad is not taxed in Poland if it is not earned in Poland.

“This means that people who earned income in countries using the exclusion with progression method and do not have income in Poland may not pay tax in Poland. However, if such a person also earned income in Poland, this method may lead to higher taxation. It results in that income in Poland is not taxed according to the classic tax scale, but with a specially calculated tax rate,” the tax advisor noted.

According to Juszczyk, the exclusion with progression method is more beneficial for a Polish taxpayer if he earned income only outside the country, because then he will not pay any tax in Poland. “However, it should be noted that taxpayers themselves do not have a choice as to the method of settling foreign income – this is decided by the countries among themselves,” he concluded.

The expert reminded that income obtained abroad should be converted into Polish zloty according to the average NBP exchange rate from the day before obtaining the income. Taxpayers also have the opportunity to reduce their income by 30%. allowance for each day of stay abroad, which will further reduce the tax base.

Main photo source: Shutterstock

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