Israel – Poland Tax Treaty

Business Activity in Poland

Poland is a key market in Central Europe, attracting U.S. exporters and investors with its large population, educated workforce, and strategic location providing access to the European Union’s single market of over 448 million people. As the largest market among the EU’s newer member states and the sixth-largest economy in the EU, Poland has seen steady growth fueled by economic reforms since joining the EU in 2004. With a GDP of $688 billion in 2022, Poland maintained resilience during the pandemic and continues to benefit from low unemployment, rising wages, and EU funding for infrastructure. Key industries include automotive, aerospace, IT, pharmaceuticals, and energy. Poland also offers opportunities in defense, digital technology, and business services.

The country’s favorable investment climate makes it a promising export market, supported by its integration with the EU and access to a broader regional market. The country has attracted significant foreign investment, exemplified by Intel’s planned chip assembly and testing plant near Wroclaw, supported by €1.9 billion in state aid. However, challenges persist, such as a capital shortage in the banking sector affecting the green energy transition.

Bilateral Agreements Between Poland and Israel

• Investment Encouragement and Protection Agreement
• Convention for the Prevention of Double Taxation

Convention on the Prevention of Double Taxation

The agreement between the Governments of Israel and Poland regarding the avoidance of double taxation was signed on May 21, 1991, and entered into force on December 31, 1991.

To read the agreement in English click here.

Reciprocal Promotion and Protection of Investments

The Reciprocal Promotion and Protection of Investments (RPPI) was signed on May 21, 1991, and went into effect on May 5, 192. The RPPI is an agreement between Israel and Poland that is designed to encourage and safeguard investments made by individuals and companies from each country in the territory of the other. These agreements typically include provisions related to non-discrimination, compensation for expropriation, dispute resolution, and the transfer of funds.

To read the agreement in English, click here.

Applicability of the MLI

Both Poland and the State of Israel have signed the Multilateral Convention, commonly known as the MLI. The MLI is a convention that is meant to fix double taxation treaties according to the BEPS framework.

Israel signed the MLI on the 7^th of June 2017, with its provisions entering into force on the 1st of January 2019. Poland also affixed its signature to the MLI on the 7^th of June 2017, and its provisions became effective as of the 1^st of July, 2018.

Residency for Tax Purposes in Poland

Residence of an Individual

A person is considered a tax resident in Poland if they meet one of these conditions:

• Their personal or economic life is mainly based in Poland (the center of vital interests).
• They stay in Poland for more than 183 days in a tax year.

The “center of vital interests” includes factors like family and social ties, where they earn a living, and their involvement in social, political, or cultural activities.

To learn about how an individual is considered a resident of Israel, click here.

Residency of a Company

A corporation is considered resident when it has its registered office (seat) or management board in Poland. A foreign corporation is considered to have a management board in Poland if its daily affairs are conducted in an organized and continuous manner in Poland.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Poland

Poland Tax Authority is called the National Revenue Administration.

Income Taxation: 12% or 32%

Taxation of Companies and Branches: 19%

VAT: 23%

Capital Gains Tax: 19%

Withholding Tax

Inheritance Tax and Estate Tax in Poland

Inheritance tax in Poland is levied on assets received through inheritance, with rates and exemptions varying based on the heir’s relationship to the deceased and the value of the inherited assets.

If the inherited value exceeds the tax-free amount, the following progressive tax rates apply:

Group I:

• Up to PLN 10,278: 3%
• PLN 10,278 to PLN 20,556: PLN 308.30 plus 5% of the amount over PLN 10,278
• Above PLN 20,556: PLN 822.20 plus 7% of the amount over PLN 20,556

Group II:

• Up to PLN 10,278: 7%
• PLN 10,278 to PLN 20,556: PLN 719.50 plus 9% of the amount over PLN 10,278
• Above PLN 20,556: PLN 1,644.50 plus 12% of the amount over PLN 20,556

Group III:

• Up to PLN 10,278: 12%
• PLN 10,278 to PLN 20,556: PLN 1,233.40 plus 16% of the amount over PLN 10,278
• Above PLN 20,556: PLN 2,877.90 plus 20% of the amount over PLN 20,556

Relocation

According to the treaty for the prevention of double taxation, when a company is considered a resident of two countries according to the internal law of each of the countries, that is, a resident of Israel according to Israeli law, and also a resident of Poland according to Polish law, it will be considered a resident of the taxable country according to the place where the actual management of the company is carried out. Hence, companies controlled by an individual who relocated from Israel to Poland may be considered Polish residents, and therefore liable to pay tax. Therefore, it is crucial to consult with experts in the field, and our firm provides advice in this field as well.

Further information on relocation can be found in our Relocation article.

Real Estate Taxation in Poland

Real property tax in Poland applies to land, buildings, and fixed business installations. Exemptions include agricultural and forest land (unless used for business), land under rivers (excluding lakes or reservoirs), and land/buildings for public road construction.

2024 Maximum Tax Rates:

• 34 PLN/m² for business land
• 71 PLN/m² for other land
• 15 PLN/m² for dwellings
• 10 PLN/m² for business buildings
• 17 PLN/m² for other buildings

Agricultural Tax applies to arable and wooded land, except when used for non-agricultural business purposes.

Minimum CIT on Real Estate:

Introduced in 2018, this tax applies to commercial properties leased or rented. The rate is 0.035% of the property’s initial value, minus an exemption of 10 million PLN. The tax is paid monthly.

Transfer of Funds from Israel to Poland

According to section 170(a) of the Israeli Income Tax Ordinance, all payments transferred to non-Israeli residents are subject to a 25% withholding tax. However, this tax can be reduced or even waived if certain conditions are met. Our firm handles withholding tax matters with the Israeli Tax Authority.

As mentioned above, the countries have signed a tax treaty, that allows taxpayers to submit a 2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax, to potentially transfer the payments without paying the withholding tax.

In addition to assisting with withholding tax matters, our firm also helps with other issues related to transferring funds abroad. This includes providing an accountant’s approval regarding the payment of taxes, reviewing additional actions required under the CRS standard, and more.

Moreover, banks often raise many difficulties and charge high fees for converting shekels into other currencies. Therefore, consulting with a specialist before transferring the funds is highly recommended, click here to contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Poland

The main types of legal entities operating in Poland include:

Limited Liability Company is the most common form of association in Poland. For its establishment, a minimum share capital of 5,000 PLN (Polish zlotys) is required, with each share having a minimum value of 50 PLN. The meaning of limited liability is that the liability of the shareholders is limited to the funds they invested in the purchase of the shares, and they cannot be charged beyond that. A limited liability company must pay income tax and VAT in Poland.

The Polish Joint-Stock company refers to large businesses. Its establishment requires a minimum share capital of PLN 100,000 and the par value of one share cannot be lower than PLN 0.01. Foreign investors who want to expand their business in Poland can open a branch or a subsidiary in Poland.

A Civil Law Partnership is a good business option for small businesses. This is a simple business form that requires two partners to declare joint business goals. Each partner is responsible for the partnership’s obligations.

The General Partnership is also intended for relatively small businesses managed by at least two entities and does not require a minimum share capital. The partners are responsible for the partnership obligations. The partnership must be registered in the national court register, otherwise it cannot carry out any business activity.

The Limited Partnership does not require a minimum share capital, but it must have at least two founders. The partners are responsible for the partnership obligations.

A Limited Stock Partnership should include an active partner (the general partner) and a passive partner or shareholder (the capital provider). Its establishment requires a minimum share capital of PLN 50,000, with a minimum share value of PLN 0.01. The general partner bears unlimited liability for the partnership’s obligations up to the full value of all assets. The shareholder has no responsibility for the partnership’s obligations.

Incentive Laws in Poland

Poland offers a range of investment incentives to attract businesses and stimulate economic growth. The Polish Investment Zone provides income tax exemptions based on investment location, project type, and company size, with support periods ranging from 10 to 15 years.

Governmental grants are available for significant investments, particularly in sectors like aviation, defense, automotive, IT, chemicals, furniture manufacturing, and food processing. Additionally, exemptions from property tax can be obtained at the municipal level, offering further financial relief. These incentives aim to enhance Poland’s competitiveness and foster regional development.

Poland Double Tax Treaties