Poland | Employee incentive plans

The Polish Personal Income Tax (PIT) Act contains only two regulations for the taxation of income generated in connection with participation in employee incentive plans. One of these provisions refers to incentive schemes based on stocks or shares, with the second relating to incentive plans based on derivatives.

Depending on how the incentive scheme is construed, income derived in connection with participation in such a scheme may be taxed with 19% PIT (for capital gains) or at a progressive scale up to 32%. Tax classification of incentive schemes also influences social security and health insurance contributions.

Stocks or shares

The Polish PIT provisions relating to incentive schemes based on stocks allow for the deferral of the moment of taxation of stocks acquired or subscribed for under such incentive scheme until their future sale (regardless of whether they were acquired free of charge or below their market value). Upon the satisfaction of the conditions specified in the PIT Act, income for incentivised employees emerges only once; that is, at the time the stocks are transferred for consideration and the income is classified as capital gains, subject to 19% PIT (without social security and health insurance contributions).

Derivatives-based incentives

As regards incentive programmes based on derivatives, the Polish PIT regulations refer to the definition of derivative financial instruments mentioned in the Act on Trading in Financial Instruments.

As a rule, income from the disposal of derivatives and the exercise of attached rights is classified as capital gain income and subject to 19% PIT (with no social security and health insurance contributions). However, if derivatives were previously acquired free of charge or as a benefit in kind, proceeds from the exercise of such derivatives should be recognised as income from the source from which derivatives were obtained. Consequently, if the instrument was acquired free of charge or as a benefit in kind under the scheme operated by the taxpayer’s employer, the income from its exercise will be categorised as employment income (subject to progressive taxation as well as social security and health insurance contributions).

The main obstacle in applying incentive schemes based on derivatives is the proper construction of the instrument so that it falls within the definition of derivative financial instrument contained in the Polish PIT Act.

Osborne Clarke comment

Although the Polish tax legislation only addresses the tax consequences of employee incentive programmes based on stocks and derivatives, the latest practice of the Polish tax authorities suggests that they are willing to accept preferential taxation of income generated in connection with participation in employee incentive plans based on shares (issued by limited liability companies).

The Polish tax authorities confirm in their tax rulings that, following general rules of taxation of shares provided in the Polish PIT Act, preferential acquisition or subscription of shares (that is, below their market value) is not a taxable moment. The income emerges only once when the shares are transferred for consideration. This income is currently taxed using the 19% capital gains tax (with no social security and health insurance contributions).

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