Since January 2022, a law has been in force in Poland that expands the list of people entitled to an exemption from paying PIT (personal income tax). If previously it was mainly used by young people under the age of 26, now other categories of people can join them. This also applies to foreigners, but they must meet certain criteria.
In the Republic of Poland, since this year, the concept of “return benefit” (ulga na powrót) has appeared. It is mainly aimed at Poles who have decided to return to their home country. In order to encourage them, the state offers them a bonus in the form of a temporary exemption from paying the PIT on their monthly income. Citizens of the former CIS countries who hold a Pole’s card will also be able to take advantage of this benefit.
They need to move their tax residency to Poland, i.e., immigrate here, get a job legally or start their own business and pay all taxes locally. Now let’s talk about what additional conditions need to be met to activate the benefit, and how it will work in practice.
Who is exempt from paying PIT
You can receive the PIT refund if you stay in Poland for at least 183 days per year after coming to Poland in 2022 or the following years, work under a work contract (umowa o pracę), mandate agreement (umowa zlecenia) or start your own company (including B2B activities). In the latter case, the form of taxation does not matter. However, the exemption does not apply to income from “umowa o dzieło” or from dividends.
“The Welcome Back Allowance is only applicable if the foreigner has been a permanent resident outside the Republic of Poland for the last 3 years before moving.
PIT exemption mechanism
Unlike young people under 26 years old, the new law ulga na powrót initially provides a different mechanism of action – from the monthly earnings of a person with a Polish card who moved to Poland, the PIT will be steadily deducted, and by filing an annual PIT-37 tax return, the entire amount of deductions will be refunded.
It has recently been clarified that it is possible to avoid paying monthly tax advances and thus start taking advantage of the exemption now. To do this, the employer (if the employee is registered on umowa o pracę or umowa zlecenia) must submit the appropriate application oświadczenie o spełnianiu warunków do korzystania z ulgi na powrót. You can download a sample here.
Period of exemption
PIT tax exemption for Pole Card holders is provided for 4 consecutive years. The starting point will be either the moment when the foreigner moves to Poland with subsequent employment/opening of a business, or the calendar year that follows. It is up to the taxpayer to decide from which period it is better to start using the exemption. When moving to Poland in February, it is better to choose the “next year” option, as this way you will save more money.
Limits for the exemption
If foreigners with a Polish residence card, after moving to Poland, start to use the “return allowance” from 2022, the limit for their annual income not subject to PIT is PLN 85,528. Thus, over the course of 4 years, the total amount of tax-exempt income could amount to PLN 342,112. If, for example, your annual income exceeds the amount of PLN 85,528, PIT is payable only on the excess amount.
Remember that the limit unused in the current year cannot be carried forward to the following tax years.
To whom else may ulga na powrót apply
In addition to holders of a Pole’s card, the new tax allowance when moving to Poland may also apply to Poles returning to their home country and foreigners who:
- are citizens of EU countries, EEA or Switzerland.
- have lived during the last 3 years in one of the EU countries, EEA, Switzerland, Great Britain, Australia, New Zealand, Japan, Korea, Canada, Mexico, Chile, Israel or the USA;
- previously resided continuously in Poland for 5 years.
There is an important nuance in the case of the last point: foreigners must have resided continuously in another country or countries for the last three years before coming to Poland again.