The abolition allowance, which guarantees Poles working abroad a favorable tax settlement, will be abolished. This year, you can use it for the last time.
PIT can be submitted from February 15 to the end of April. Before we send the declaration to the tax office, it is worth taking advantage of taxpayers’ discounts. This is especially important for people working abroad. Abolition relief means that they pay a lower tax.
On January 1, 2021, however, the regulations that eliminate the relief favorable to economic emigrants entered into force. Experts remind that this year’s settlement with the tax office is the last opportunity to take advantage of it.
Abolition relief for the last time to be deducted
As a rule, earning money outside Poland requires taxation of income also at home. Such taxation is governed by the provisions of bilateral treaties for the avoidance of double taxation. The purpose of such contracts is to remove the employee from having to pay tax in both countries. The regulations still in force in the settlement for 2020 distinguish two methods of avoiding double taxation.
Rafał Frączyk from EY explains in an interview with PAP what it is about. Abolition relief, which allows to avoid unfavorable tax settlements, applies to people living and earning money abroad, but who have the so-called a center of personal (e.g. immediate family) or economic (e.g. business) interests.
One of the methods of avoiding double taxation is a proportional deduction. Then the income earned abroad is taxed in Poland, but the tax paid abroad is deducted from the tax due. However, this method is less favorable than the exclusion with progression method. This means that in Poland, the income earned abroad is excluded from the tax base, which is exempt from taxation under double tax treaties. The method used for billing depends on the agreement signed between the two countries.
– Due to the method of calculation, the latter method is more favorable for the taxpayer – especially if the tax paid abroad is for various reasons lower than in Poland – explains the tax advisor.
The purpose of the abolition allowance is to compensate for the differences between the two methods so that people who earn income abroad, when the proportional deduction method applies, do not have to pay extra tax in Poland. It enables the application of an additional deduction from input tax in Poland
The expert explains that the change was introduced from January 1, 2021 limits the abolition allowance to the amount of PLN 1,360 per year. According to Frączyk, in practice, this means that in many cases Polish taxpayers will have to pay tax to the Polish tax office on their income earned and taxed abroad.
Who will lose from these changes? We are talking about Poles working, for example, in Great Britain, the Netherlands, Belgium, the USA, Russia, Norway or Denmark, because the method of proportional deduction is used there.
What in practice is the removal of the tax relief for Poles working in these countries?
– If a tax has been paid abroad, it will be able to be deducted from the Polish tax. However, if the tax charged abroad for various reasons is lower than the Polish tax, e.g. due to lower tax rates, a higher tax-free amount or additional allowances and deductions abroad, and the difference exceeds the limit of PLN 1,360, you will have to pay an additional tax in Poland – explained Frączyk.
As he informed, the change will not affect people working, among others in Germany, Spain, France or Italy, because in the case of these countries, the avoidance of double taxation consists in exempting taxable income in Poland.
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