IFT-1R also for non-residents receiving PIT-exempt benefits

The deadline for payers of personal income tax to issue the IFT-1R information expires soon. The form relates to information on the amount of income (revenue) received by individuals who do not reside in Poland for tax purposes.

Who issues the IFT-1R and when?

Payers who, in 2023, made payments to individuals, Polish tax non-residents, which are indicated in Articles 29-30a of the Personal Income Tax Act, are obliged to issue this information. These include income from:

• contracts of mandate,
• disposal of copyrights,
• intangible services,
• interest,
• dividends,
• prizes received in competitions and as part of bonus sales.

The IFT-1R should, in principle, be prepared and sent (to the tax office and to the taxpayer) by the end of February of the year following the tax year at the latest. The deadline for issuing the IFT-1R information for 2023 is 29 February 2024.

IFT-1R and issuance of awards

Based on the latest tax rulings issued by the Director of the National Tax Information, payers should pay particular attention to the obligation to issue the IFT-1R to non-residents who were winners in competitions or bonus sales organised by them.

As a rule, prizes in such events are subject to a flat-rate income tax of 10% of the prize value. If the prize is received by a Polish tax resident, the payer does not issue additional tax information to him or her. It is sufficient for the payer to declare tax withheld in the PIT-8AR tax return filed by the payer after the end of the year. In the case of a non-resident, there is an additional obligation to issue a document called IFT-1R and send it to the tax office and the taxpayer.

In practice, however, it often happens that prizes issued as part of competitions or bonus sales are not taxed at all. This will be the case, for example, where a competition is held in the field of science, culture, art, journalism or sport, and the one-off value of the prize does not exceed PLN 2,000.

Taking advantage of the above tax exemption is connected with the absence of any payer’s obligations in a situation in which the prizes are awarded to Polish tax residents. In the case where the prize is awarded to a non-resident, the payer’s obligations are different.

IFT-1R vs. income exempt from PIT

Unlike for Polish tax residents, the payment of certain benefits to non-residents does not constitute any information obligations towards taxpayers and the tax office for payer.

This is because the PIT Act assumes that the IFT-1R information should also be issued if, on the basis of a double taxation treaty or the PIT Act, the entity paying the given benefit is not obliged to collect the tax referred to in Article 29-30a of the PIT Act.

As a consequence, an entity that provided prizes to winners of competitions (or as part of bonus sales) – Polish tax non-residents – also in a situation in which these prizes were exempt from PIT, is obliged to issue IFT-1R information to such persons.

The above approach is certainly impractical and may generate for payers, a significant amount of additional administrative work and costs (if only in the form of the obligation to collect detailed personal data of the non-resident or to send the IFT-1R abroad).

This impracticality becomes more evidentwhen one realises that, in many cases, this type of income is not subject to taxation abroad, e.g., due to tax-free amounts and exemptions applicable in other countries. This makes the issued IFT-1R information often useless.

In this context, it should also be noted that entities organising competitions or bonus sales, as a rule, organise them to improve their image or to gain new customers. These objectives may be nullified in a situation where regulations impose obligations on organisers to issue IFT-1R information, which then goes to the winners and potentially forces them to analyse whether and where the given benefit should be taxed.

How can we help?

Any entity which has paid any amounts to Polish tax non-residents or provided such persons with benefits in kind should analyse as soon as possible whether it is obliged to issue the IFT-1R information.

Should you have any doubts, we encourage you to contact us. Together, we will identify the situations in which an IFT-1R should be issued to a non-resident, fill it out correctly and help you submit it to the relevant tax office.

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Legal basis:

• Articles 21, 29-30a and 42 of the Personal Income Tax Act..

Rulings cited:

• Individual interpretation of the Director of National Tax Information of 15 December 2023, ref. 0114-KDIP3-1.4011.937.2023.1.AK.