Unleashing your business potential into the heart of Central Europe can be an eye-opening experience, especially in a country with such a rapidly developing economy as Poland.
But before you do that, you need to get the hang of how taxes work in Poland.
For you, as a British entrepreneur who already knows the ins and outs of the HMRC system, the Polish tax system might look simple and familiar in some areas.
At the same time, it has its own unique twists and quirks that you simply must keep track of.
This brief guide is designed to take you through the basics of tax in Poland and how they compare to their UK counterparts.
Corporate Income Tax (CIT)
In Poland, corporate income tax is paid on the profits of companies.
The standard rate is 19%, the same as Poland’s exhibitor country, the UK, albeit the main rate in the UK is currently at 25% for most companies (with the small profits rate currently being 24% with a 19% band for the remainder), but for Polish standards, it will only affect large companies.
In Poland, there is also a reduced rate of 9%, available to so-called small taxpayers (i.e. companies with an annual turnover of less than €2 million a year).
This is very attractive for new offices or for young, start-up companies. This is of special interest for UK companies establishing a Polish subsidiary or branch for the Polish market.
Personal Income Tax (PIT)
For sole traders or entrepreneurs operating as individuals, personal income tax in Poland is charged progressively:
- 12% for income up to PLN 120,000 (roughly £23,000)
- 32% for income above this threshold
In the UK, personal income tax varies from 20% basic rate to 45% additional rate for high-income earners.
At first glance, Poland’s 17% and 32% may seem moderate, but in the UK, you need to have a big base income to move into the higher band.
Poland also allows entrepreneurs to use a 19% flat-rate tax regardless of actual income, which could be beneficial for specific business models.
Value Added Tax (VAT)
Poland is a VAT country similar to the UK. The main rate of VAT is 23%, with a reduced rate of either 8% or 5% on certain items.
This compares to the UK at 20%, 5% and zero rates on things like children’s clothes and food.
If you are a business trading in goods in Poland, you will need to register for VAT when you go over a sales threshold of PLN 200,000 (approximately £38,000).
This compares to a UK registration threshold of £90,000. If you are approaching that threshold, you might have to register earlier than you think!
Social Security Contributions
In Poland, for both the entrepreneur and the employee, social security is a big cost. It pays out for a range of benefits, including pensions, health, disability and more.
Employees and employers have to stump up about 35% of the relevant gross wage between them.
This contrasts sharply with the UK, where National Insurance is paid at 13.8% by the employer and 8–12% by the worker, depending on income.
So, for a British entrepreneur hiring an employee in Poland, it’s a cost that needs to be factored in.
Other Business Taxes
Poland also levies:
- Real estate tax for property owners, based on land or building area.
- Excise duty on alcohol, tobacco, and energy products.
- Civil law transaction tax (PCC), which is applicable to certain contracts, such as loans or share transfers.
These may not apply to every business, but they can be significant depending on your sector.
Double Taxation Treaties
Another important aspect to consider is Poland’s network of double taxation treaties, including one with the UK.
These treaties are designed to prevent you from paying tax twice on the same income, a concern that often comes up for cross-border entrepreneurs.
By structuring your business carefully and making use of these agreements, you can reduce tax friction and avoid unnecessary costs when moving profits or dividends between the two countries.
UK vs Poland: Key Takeaways
- Corporate tax is roughly comparable, but Poland offers a better deal for smaller taxpayers.
- Personal tax looks worse overall, but is deceiving because of the relatively low income at which higher rates apply.
- VAT registration triggers earlier than in the UK.
- Social security is far higher, so employing people is more expensive.
Final Thoughts
British investors have to familiarise themselves with the Polish tax system before deciding to operate in the country. Lower CIT rates are a plus, but high social contributions can increase long-term costs.
Poland, with its developing economy located in the heart of Europe, can be a good place to do business.
To make investments there successful, one should prepare properly and take into account many elements of the tax system.
Advisers in Poland, as well as international tax advisers, are there to help and make starting a business compliant with the law and optimise structures from the perspective of both Polish and British tax law.
