RETURN RELIEF – INCENTIVE FOR TRANSFERRING TAX RESIDENCY TO POLAND

Following the example of countries such as Spain, Italy, France, and Germany, Poland aims to encourage the return of tax residents by offering more favorable tax settlement conditions. The goal is to stimulate the economy and incentivize people to relocate back to Poland. Primarily, such measures aim to retain intellectual and investment capital, boost the labor market, and increase its attractiveness. Additionally, this initiative seeks to prevent brain drain, particularly among Polish graduates of foreign universities, and to improve demographics by rejuvenating the population.

What is Return Relief?

Return relief is a tax incentive designed to encourage Poles living abroad to return to the country. It grants an income tax (PIT) exemption for earnings up to 85,528 PLN per year for a period of four consecutive tax years. The relief applies to income from employment contracts, civil law contracts, and business activities taxed under the progressive tax scale, flat tax, or lump-sum taxation.

To qualify for the relief, the taxpayer must: relocate their tax residency to Poland after December 31, 2021, and obtain Polish tax resident status, have not been a Polish tax resident for at least three full calendar years preceding the year of relocation – this requirement applies from the beginning of the year of relocation until the day before the change occurs, hold Polish citizenship, a Pole’s Card (Karta Polaka), or citizenship of an EU, EEA, or Swiss Confederation member state.

Alternatively, eligibility can be established if the taxpayer has documented residence for at least three years in one of the countries listed above, or in Australia, Chile, Israel, Japan, Canada, Mexico, New Zealand, South Korea, the United Kingdom, or the United States. For other countries, the taxpayermust have lived in Poland for a minimum of 5 years before the 3-year period of residence abroad.

How to Apply and Use the Relief?

To apply, the taxpayer must provide a certificate of tax residency or another document confirming their tax residence during the required period. Additionally, they must not have previously used this relief, either in full or in part.

The taxpayer can choose whether the relief applies from the year of return or from the following year. To claim it, they must submit a declaration to their employer or the tax authority. Importantly, return relief can be combined with other tax benefits, such as: the “4+ Family” relief (for large families), the senior employment relief (for working pensioners). However, the total tax-exempt income cannot exceed 85,528 PLN per year.

The exemption can be applied throughout the tax year when calculating advance income tax payments. For employment and civil law contracts, the taxpayer must submit a written declaration to the employer (payer), confirming eligibility for the exemption. This declaration must include a statement of awareness of criminal liability for false declaration and specify the start and end years of the exemption.

Finally, the relief is settled in the annual PIT tax return for the relevant tax year. The relief is available for four consecutive years and can be applied from the year of return or the following year. It cannot be used again if the taxpayer leaves Poland for more than three years after using the relief. The relief can be combined with other exemptions, but the total tax-exempt income cannot exceed 85,528 PLN annually.

According to experts, return relief is particularly attractive to high earners, especially those who can relocate to Poland without changing their employer. This incentive may successfully encourage skilled professionals to return while maintaining their international careers. However, the change of residence, as well as new tax realities and the dynamics of tax changes, may cause many problems ranging from the choice of the form of taxation to assistance in preparing the appropriate documentation. Establishing non-residency, the length of time spent abroad and the detail of the rulesfor receiving relief are the most common reasons for rejection. Therefore, throughout the entire process of obtaining the right to claim the return relief, the assistance of a tax adviser can prove in valuable.