Last Updated on October 9, 2024 by Kristina Valcheva
This article was reviewed by a tax advisor.
The Polish Deal (also known as the New Polish Order) was introduced on 1 July 2022, though some of the regulations will not take effect until 1 January 2023. In this guide, you will find everything you need to know as an overseas landlord with property in Poland about the Polish Deal.
What is the Polish Deal?
The Polish Ministry of Finance implemented some new legislation aimed at simplifying tax settlements.
The new Polish Deal includes tax changes that will affect everyone who pays them, including landlords (both residents and non-residents). Let’s take a look at the current rental income taxes and what has been implemented.
How is Polish rental income taxed now?
At present, all Polish private landlords can choose between two options when paying their rental income tax:
- Reduced tax rate – 8.5% for income up to 100k PLN and 12,5% for income over 100k PLN. This is the simplified tax method, where no deductions are permitted and only real income is taxed (amount of rent paid by a tenant). Private landlords in Poland who operate on a small scale and don’t want the hassle of bookkeeping frequently use the reduced rate.
- Progressive rate – With a tax-free allowance of 8kPLN, the tax rate is currently 17% for income up to 85,528 PLN and 32% for income over 85,528 PLN. A number of deductions are allowed: service fees and utility bills (if not paid by a tenant), property tax, insurance, maintenance costs, renovation costs, the cost of purchasing new equipment, the interest rate on the mortgage, and depreciation of the property (1.5% to 10% of the property value per year).
Landlords who have a lot of expenses frequently use the progressive rate. It requires more time because all expenses must be supported by invoices and receipts, which must then be kept and property owners might need assistance from a qualified accountant.
The primary consideration, in this case, is the property’s depreciation write-offs, which represent a considerable deduction from gross income. However, applying the progressive rate frequently results in paying less tax or none at all.
The following tax options are currently available to all landlords who conduct business activity by renting out their properties in Poland:
- Reduced rate (same rates as individuals)
- Progressive rate (same rates as individuals)
- 19% flat tax with allowable expenses
- Tax cards are the most straightforward form of taxation, requiring neither tax declarations nor bookkeeping. Regardless of the amount of the income, tax is paid on the gross amount. The type of business activity, the number of employees, and the number of residents in the tax district all affect the tax rates.
What is the Polish Deal for landlords?
Currently, taxpayers have the option of taxation of rental income using a tax scale or a lump sum tax on total revenue.
As of 2023, rental income will be taxed only as a lump sum on recorded revenues (8.5% on revenues less than PLN 100,000 per year and 12.5% on surpluses bigger than PLN 100,000). This means that the total rental income will be taxed without the ability to deduct income-generating expenses (e.g. maintenance costs, utilities).
Landlords running a business will have three options: reduced rate, progressive rate, and flat rate; the tax card will be phased out.
The government also proposes two important changes:
1. There are no depreciation write-offs for residential properties, even if they are partially or entirely rented for business purposes.
2. There is no deduction for health insurance payments. Furthermore, the mechanism by which this payment is calculated would change – it would be based on income, with higher income resulting in a higher payment. Businesses that make a loss would be paid the minimum wage.
The good news is that the government intends to reduce tax brackets to 17% on income up to 120,000 PLN and 32% on income above 120,000 PLN, as well as increase the tax-free allowance to 30,000 PLN.
What can Polish landlords expect from now on?
In a nutshell, the government rental income tax proposal is that private landlords must pay tax at a reduced rate of 8.5% or 12% only, with no tax deductions allowed.
Those who want to take advantage of potential tax deductions should look into options for starting a business. But is it worth it? Taking into account the costs of doing business in Poland, this could end up being more expensive than paying the reduced rental tax rate.
Should non-residents file a rental income tax return in Poland?
Absolutely! Both residents and non-residents are obliged to pay rental income tax in Poland. Every person who receives rental income in Poland is obliged to file a Polish property tax return and declare this revenue to the Polish authorities each year.