A big change in PIT from the new year. Poles working abroad, must start paying double income tax. This act is not just a proposal, but it is a foregone conclusion.
In practice, this will be the effect of reducing the so-called the abolition amount in the Personal Income Tax Act – PIT, which the government intends to make. This act has already been passed by the Sejm and is now sent to the Senate. From January 1, 2021, Poles working in countries such as Belgium, the USA, Denmark or the Netherlands will no longer be able to take advantage of the abolition relief, which allowed for tax deduction for earnings abroad.
This is very bad news for many Poles who regularly work abroad. They will have to pay PIT according to the Polish tax table, and most of them earn more than approx. 20,000. euro, some of them will cover the 38 percent rate. – much higher than, for example, in the Netherlands, Austria or the USA, with which Poland has signed agreements on the avoidance of double taxation using the proportional deduction method.
The abolition allowance is available to people who earn income abroad and who are also a Polish tax resident, i.e. they have a center of life in Poland. To prevent double taxation, countries agree on how and in which country income will be taxed.
Depending on the concluded agreement, Poland uses two methods of avoiding double taxation. The method of exclusion with progression and the method of proportional credit. The method of exemption with progression is more favorable for taxpayers because it does not require taxation of income earned abroad in Poland. They are included in the annual tax return for the sole purpose of determining the tax rate. The proportional credit method requires the calculation of tax on total income earned in Poland and abroad, with the possibility of deducting foreign tax. However, if the tax paid in another country is lower than the Polish tax, the taxpayer must pay the difference.