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Belka tax: changes ahead
There has recently been considerable discussion in Poland's investment and savings sector. It stems from the Ministry of Finance's announced change to capital gains tax. Commonly known as the Belka tax, it has provoked strong reactions among specialists since its introduction in 2002. Who pays Belka tax, and how significant will the change be?
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What is Belka tax?
Belka tax is simply flat-rate personal income tax to be expected when we grow our savings. It is charged on profits from different forms of capital investment: deposits, savings accounts and financial instruments such as investment funds or stock-market shares.
However, Belka tax does not apply to the full amount of our savings. It is charged only on earned profits, such as interest accrued on our investments. Hence it is often called a tax on savings, understandably so because it mainly concerns profits from bank deposits or interest-bearing savings accounts.
For example: if we put PLN 1,000 in a deposit earning 2% annually, our profit after a year will be PLN 20. Belka tax is due on that PLN 20.
What do we pay Belka tax on?
Profits subject to Belka tax are specified in Article 17 of the Personal Income Tax Act. This article lists various taxable forms of income, including capital investment profits. These include:
interest (profits) from deposits and savings accounts
bond interest
profits from selling shares
dividends on shares held
profits from securities
profits from employee pension funds
profits from paid sales of virtual currencies (such as cryptocurrencies)
If you are unsure whether tax is due, consult an experienced tax adviser.
How much will Belka tax be after the change?
Capital gains tax is currently 19% and has not changed since 2004.
For example: our savings account profits were PLN 500. The bank will pay us an amount reduced by Belka tax, in this case PLN 500 x 19% = PLN 95.
So our net deposit earnings will be PLN 405.
The proposed change significantly complicates the tax calculation, specifically the amount below which no tax is payable. Under the Ministry of Finance proposal, tax-exempt income (interest) from deposits with a maturity of over one year (excluding, for example, share investors) would be determined by multiplying PLN 100,000 by the National Bank of Poland's deposit rate on the last day of the third quarter of the year preceding the tax year. Using the deposit rate itself or a multiple of it is being considered, with a guarantee of at least 2.5%. In very simplified terms, if the current NBP deposit rate is 5.25, the tax-free amount is PLN 5,250.
The formula is: NBP deposit rate x PLN 100,000 = amount exempt from Belka tax
The Ministry assures that despite annual changes in the deposit rate, the exemption will not fall below 2.5% of PLN 100,000, meaning a minimum tax-free amount of PLN 2,500.
If you found this article interesting, explore our tax advisory services and read how we can help you:
Summary
Despite its complicated formula, the change will benefit small investors whose profits do not exceed the tax-free threshold. Excluding deposits lasting less than a year from the Belka tax exemption is intended to encourage Poles to save longer and limit deferred consumption (short-term saving, for example, for holidays).
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