At the beginning of November the Lower Chamber of Polish Parliament (Sejm) adopted a new act amending the provisions regarding lump-sum income tax on rental revenues. At the moment some amendments to this act made by the Upper Chamber of Polish Parliament (Senate) are awaiting acceptance of Sejm. Later the act will have to be signed by the President and published in the Journal of Laws of the Republic of Poland. However, it is already known that from the 1st January 2010 the higher 20% rate of this tax is to be cancelled. This change in the rules of taxation can be profitable even for 80 thousand of taxpayers.
The mentioned change of taxation rules may be important not only for Polish citizens, but also for all foreigners who have bought real estates in Poland and are renting them now. As it follows from the agreements on avoidance of double taxation, income earned from immovable property is usually subject to taxation in the country where the property is located. So if you rent your apartment situated in Poland, you are obliged to pay Polish income tax.
From what we choose?
It is said that the hardest thing in the world to understand is the income tax. And this rule proves to be correct as far as Polish income tax on rental revenues is concerned. Currently revenues earned from the rental, which is not carried out within the scope of business activity, generally can be settled in two alternative ways: taxation according to rates arising from Polish Personal Income Tax Act (18% – if the whole taxpayer’s income does not exceed the amount of PLN 85.528; if it is higher, the excess is taxed at 32%) or taxation in the form of a lump sum.
But there is also another possibility, which applies to the taxpayers renting apartments within the scope of their business activity. If the rental is one of the company’s revenue, a taxpayer has the option of flat rate tax to be levied at 19%.
When we want to deduct the costs…
As far as general rules are concerned, subject to the taxation is only net income, i.e. a revenue earned from a rental reduced by the tax deductible costs (therefore, it is so important to determine what expenses incurred by a taxpayer can be considered as tax deductible costs).
As far as “private” rental is concerned (I mean the rental not constituting taxpayers’ business activity), tax deductible costs are for example: legal fees (the notary, real estate agent, expert in real estate), costs of maintenance (water, electricity, gas, waste disposal, etc.), management costs, property tax, insurance of the apartment, the expenditures for repairs, expenditures for a purchase of equipment which increases the attractiveness (standard) of the apartment, tax depreciation of the rented apartment and other expenses related directly or indirectly to the rental.
or to keep the things simple?
In turn, when it comes to lump-sum income tax, the lessors pay it at a rate of 8,5% until the rental revenues do not exceed the equivalent of EUR 4.000 EUR (i.e. PLN 13.510 in 2009). The excess over that amount is taxable according to the rate of 20%. So it is sufficient that the monthly rent is higher than PLN 1125 and the lessor start paying a tax at a higher rate.
Because of the rate differences existing today, some lessors decide to pay income tax pursuant to general rules. If they have high revenues and costs connected with renting the apartment, it is more profitable for them to settle income tax according to progressive tax scale, where a revenue can be reduced by the costs. As far as lump-sum tax is concerned, a tax is calculated on the basis of the amount of revenue and without being able to decrease this amount by the costs.
Changes for the better in 2010
Lump-sum tax is today profitable only for people, who collect low rents and have low costs. The higher costs and higher revenues, the less profitable a lump-sum tax is. For example, if the rent amounted to PLN 3.000 per month and monthly costs were PLN 1000, in the year 2009 the taxpayer would pay lump-sum tax in the amount of PLN 5.646. Settling a tax according to tax scale, he would pay PLN 3.784.
Those lessors who currently prefer to pay income tax according to the rates arising from Polish Personal Income Tax Act can avail themselves of changes that are to be introduced at the beginning of the year 2010. As I mentioned before, pursuant to the provisions of the recently adopted act amending the act on protection of tenants’ rights, commune-owned housing resources, on change of the Civil Code and on change of certain other acts, as from 1st January 2010 the rate of 20% of the lump-sum tax (applying to rental revenues exceeding the amount of EUR 4.000) will be cancelled. Thus, the taxpayers will be paying the lump-sum tax on rental revenues at one rate of 8,5%.
So in the example given above there will be no change of taxation pursuant to general rules arising from the Polish Personal Income Tax Act. However, the lump-sum tax will decrease from the amount of PLN 5.646 to the amount of PLN 3060.
If the Sejm approves Senat’s amendments and if President signs the act, the changes will come into force on 1st January 2010.
In the end it should be noted yet, that from the changes discussed above only those taxpayers will benefit, who will choose the taxation in the form of a lump-sum tax. The taxpayers, who so far have been paying the income tax according to general rules and now would like to benefit from changes in rules of taxation with lump-sum tax, should submit a written declaration on choice of the taxation in the form of a lump-sum not later than on 20th January 2010.
Those who plan to commence renting the apartment during the year 2010 should submit such declaration before commencement of the rental, not later than on the day of receiving the first income from this title. The taxpayers who have previously been paying lump-sum tax may continue its settlement at a new rate beginning from 1st January 2010.
Thanks for an interesting article. After looking through different websites I finally found something worth reading.
Very interesting… as always! Cheers from Switzerland.