How Much Tax Do I Have to Pay as a Private Person?

As an individual renting out residential property in Poland, you fall under the fixed-rate tax system. Here's a breakdown of the tax rates:

An 8.5% tax applies to annual income up to PLN 100,000.

A 12.5% tax applies to annual income over the threshold of PLN 100,000.

Married couples enjoy a unique advantage as the lower tax bracket threshold is doubled in their case. They enjoy the lower tax rate on a combined income of up to PLN 200,000. To use this joint limit, married property owners must submit a declaration to the tax office no later than the 20th day of the month following their first rental income receipt from the jointly owned property. 

It is a one-time declaration that doesn't need resubmission unless the circumstances change, requiring a revised declaration.

What Will Be Taxed?

In Poland, when renting out property as a private landlord, certain expenses are not deductible from your taxable income. This includes costs related to property improvements, such as renovations or additional equipment, as well as expenses associated with property loans. Also, there is no allowance for a tax-free amount in this tax scheme.

However, it's important to note that you are not required to pay tax on utilities and other fees that the tenant is directly responsible for. As clarified by the Director of KIS (National Revenue Administration Information Center), income derived from leasing does not include expenses borne by the tenant related to the property. Therefore, additional fees for the operation of the leased property do not constitute taxable income from the rental source, nor do they lead to a property gain.

Regarding VAT

The VAT implications depend on the type of property you are renting out:

• Residential Properties: If the property is leased for residential purposes, landlords can benefit from a VAT exemption (according to Article 43(1)(36) of the VAT Act / o podatku od towarów i usług), meaning no VAT payment is required.

• Commercial Properties: For commercial premises, VAT becomes applicable if the rental income exceeds 200,000 PLN per year.

In most cases, private landlords renting out residential properties do not have to worry about paying VAT. The notable exception is for those renting out commercial premises with substantial rental income.

Strategic Opportunity for Landlords

It's advisable to clearly specify in your lease agreement the breakdown of payments – distinguishing between the rent and additional costs like administrative rent and utilities. This clarity can help you avoid the risk of being taxed on more than your actual income. For instance, in Rendin agreement drafts, this distinction is made simple and concise, ensuring transparent and accurate tax calculations.

When to Pay Taxes on Rental Income?

As a landlord in Poland, you have the flexibility to choose between monthly or quarterly tax payments on your rental income. Regardless of the chosen method, it's crucial to pay the tax by the 20th of the month following the income period. Here's how it works:

Monthly Payments

If you opt for monthly payments, you'll need to pay tax on your rental income by the 20th of the month following the income month. For instance, if you receive rental income in July, the tax for that income is due by August 20th.

Quarterly Payments

Choosing quarterly payments means you'll pay tax on the rental income of a full quarter (three months) by the 20th of the month following that quarter. For example, for income earned in July, August, and September, the total tax is due by October 20th.

Strategic Opportunity for Landlords

Opting for the quarterly payment method can be financially advantageous. Though the benefit might seem modest, it essentially allows you to utilize the tax owed as a "interest-free loan" from the government. Here’s a practical example:

If your rental income is received on the 5th of each month, choosing quarterly payments means you'll pay the tax 105 days after receiving the income. In contrast, monthly payments require the tax to be paid within 45 days of income receipt. This longer period before the tax payment can be strategically used for other financial purposes.

Legal Context

According to Polish tax regulations, landlords have the right to select their preferred tax payment frequency—monthly or quarterly. It's essential to communicate your choice in your annual tax declaration (PIT-28) for the tax year when you use the quarterly payment method. Notably, for December income (or the last quarter of the year), taxes are due by the end of January of the following year.

How to file your taxes declaration & tax return?

As a landlord in 2023, you should report your rental income in the PIT-28 form by April 2024. If you opt for lump-sum taxation on your rental income, it's important to note that this method does not allow for the deduction of property-related expenses, like renovations or furnishings. Under this scheme, you'll pay a fixed percentage of your income as tax: 8.5% on earnings up to 100,000 PLN and 12.5% on anything over that.

Additionally, even if you have other sources of income, like a job contract, and are a single parent, this taxation method does not affect your eligibility for preferential tax treatment as a person raising a child alone. This means you can still benefit from tax reductions applicable to single parents, providing a financial advantage in your overall tax situation.

Find out more from: https://www.podatki.gov.pl/niskiepodatki/pytania-i-odpowiedzi/

What if I Fail to Pay?

As a property owner, it's crucial to be aware of the repercussions of not fulfilling tax obligations related to rental income. In Poland, failure to pay taxes on time or intentionally concealing income can result in significant penalties. These penalties vary depending on the extent of the tax arrears and are interpreted in two primary ways:

• Tax Misdemeanor: If the tax arrears do not exceed five times the minimum wage, it is classified as a tax misdemeanor. In such cases, offenders can face a financial penalty up to twice the minimum wage. Additionally, they are obligated to pay the overdue tax and accrued interest. For example, if the minimum wage is PLN 3,600 (as from July 2023), the fine can be as high as PLN 7,200, plus the outstanding tax and interest.

• Tax Crime: When tax arrears exceed this threshold, the situation escalates to a tax crime. The punishment for a tax crime is determined by a court and can be significantly more severe than for a misdemeanor.

To mitigate these consequences, taxpayers with arrears have the option to initiate a process known as 'active regret' (czynny żal). This involves voluntarily reporting to the tax office and settling all dues. In cases of minor sums, taking such steps can often help avoid further complications and expenses.

Remember, staying informed and compliant is key to avoiding these legal and financial pitfalls associated with rental property taxation in Poland.

Local Property Taxes

In Poland, the local property tax is levied by the municipalities on property owners, and the rate is largely dependent on the location and size of the property. The Central Government stipulates a ceiling on the tax rates, but the actual rate is determined by the local municipal councils. This tax is usually subject to an annual review and may change to reflect the prevailing economic conditions and the fiscal needs of the municipality.

Municipal Discretion

Each municipality has the discretion to set its own property tax rates within the guidelines provided by the Central Government. This flexibility allows municipalities to adjust the rates based on their specific revenue needs and the local cost of living.

The rate of property tax is usually determined by the municipal council and is based on a variety of factors including the size and value of the property, and sometimes its use. For instance, residential properties may be taxed at a different rate compared to commercial properties.

The property tax rates are typically reviewed on an annual basis, which means they can change from year to year. This annual review process allows the municipalities to adjust the tax rates in response to changing economic conditions and fiscal requirements.

Example - Warsaw 2024 Rates

As an illustrative example, in Warsaw, the property tax rate for 2024 is anticipated to be set by the local council and likely will be 1.15/sq m. It's advisable for property owners to consult with local tax authorities or check the municipal website for the latest updates on the property tax rates.

It's essential for property owners in Poland to be aware of the local property tax rates and any changes that may occur from year to year. Staying informed and planning accordingly can help property owners manage their financial obligations efficiently.