International contractors face a real challenge when it comes to tax calculation while working abroad. With few exceptions, all income earned inside a country is subject to local income tax, or corporate tax for limited companies. At the same time, contractors may have a tax liability at home as well and will need to rely on tax treaties for relief. Some countries do offer alternative tax rates for either non-residents or self-employed contractors. Poland is one country that offers self-employed people a choice when calculating tax liability. The best option will depend on how you run your business when contracting abroad.
Income Tax in Poland
The standard personal income tax rate in Poland is:
0-PLN 85,528: 17%
Over PLN85,528: 32%
The first threshold is approximately USD$25-30,000, so it is likely a majority of income will be taxed at a higher rate. For self-employed individuals, expenses and costs of doing business can be deducted from annual income before tax calculation.
What is the alternative tax scheme in Poland for the self-employed?
There is an alternative tax scheme that can be selected by self-employed individuals, but it is not mandatory. The alternative tax rate is a flat 19% on all earnings, with no expense deductions allowed. This may be preferable for contractors who do not incur many business expenses and could not take advantage of deductions from income.
High-earning self-employed people will benefit the most from this alternative, as it reduces the tax burden of the upper 32% income tax bracket. The result is higher overall retention of earnings.
There is also a special 20% flat rate for non-residents, which would include any contractors working in Poland for six months or less. This is most likely targeted at ex-pat employees on short assignments and has no advantages over the 19% self-employed rate.
How does tax residency affect income tax?
In Poland, if you stay longer than 183 days in a year, you will be deemed a tax resident. The importance of this is that non-residents are only responsible for paying taxes on Polish-sourced income. But tax residents may be liable for tax on income generated outside of Poland in the current tax year.
If you maintain sufficient connections with your home country, you could be a tax resident there as well. Poland has tax treaties with over 100 different countries to prevent double taxation of income in this situation. Tax residency does not affect the income tax rate, except for the non-resident rate mentioned.
How can Contractor Taxation help contractors with tax calculation in Poland?
Contractor Taxation has umbrella companies in Poland that can help you select the right tax scheme for your situation. They can also assist with your contracts, facilitating client payments and tax withholding each month. If you are new to contracting in Poland, working with an umbrella company can ease the transition. Please contact us for more information on contracting in Poland and selecting the optimal umbrella company.
This article is for informational purposes only and is not intended as tax advice. It is recommended to contact your tax adviser for guidance on your specific situations.