Taxation of a foreign scholarship - how to settle PIT?

Polish researchers often participate in foreign programs, on the basis of which they receive a scholarship from abroad. Undoubtedly, such remuneration is taxable income. Therefore, the question arises, what is the taxation of a foreign scholarship? Should such income be taxed in Poland, and if so, how should it be qualified and accounted for in the tax return?

Scholarship as foreign income

A taxpayer who has the status of a Polish tax resident is subject to unlimited tax liability (Article 3 (1) of the PIT Act). As a result, he is obliged to settle all income earned both domestically and abroad.

In the event that a Polish resident earns income from abroad, this may lead to a situation in which the same income will be taxed twice - once in the country of residence and the second time in the source country.

In order to counteract such negative consequences, taxpayers should first analyze the content of international agreements concluded by Poland on the avoidance of double taxation. On the basis of the content of a specific contract, it may turn out that a given income is taxed only in one country.

This is the case with the Polish-American treaty on avoidance of double taxation. Pursuant to the provisions of Art. 17 of the same convention, income in the form of a scholarship obtained in the USA is taxable only in Poland. This means that the method of avoiding double taxation will not apply, because under an international agreement, the income is fully taxed only in the country of residence. The first step to take is to find out how a particular international treaty regulates the place of taxation of the foreign scholarship.

Taxation of the foreign scholarship is tax-free in Poland

An example is the research scholarship received from the USA. As we have already indicated, this type of income is taxable only in Poland, which means that Polish tax regulations will apply.

It should be noted that the PIT Act provides for several tax exemptions in the field of scholarships. For example, in Art. 21 sec. 1 point 39 of the PIT Act, it is indicated that the scholarships and allowances referred to in the Act of July 20, 2018 - Law on Higher Education and Science, as well as scholarships received as part of programs or projects referred to in art. 376 paragraph. 1 of this act; in the case of scholarships awarded by a natural person or a legal person other than a state or self-governing legal person, the exemption applies, provided that the rules for granting them have been approved by the minister responsible for higher education and science.
It should be noted, however, that scholarships awarded by foreign entities are not subject to approval by the Polish minister for higher education and science. Consequently, in this respect, it is not possible to take advantage of the described exemption.

As for the US scholarships we analyze, Art. 21 sec. 1 point 39d of the PIT Act, it was stated that scholarships and other benefits received under the Polish-US Fulbright Commission scholarship exchange program are exempt from tax. As a result, it is only in this respect that it is possible to avoid the need to pay tax on the foreign scholarship. Taxpayers receiving foreign scholarships should analyze whether they have not been listed as income tax-exempt.

Taxation of the foreign scholarship

If it follows from an international agreement that the scholarship should be taxed in Poland, and the content of the PIT Act does not indicate that any tax exemption can be applied, then you should take into account the need to settle the tax.

To find out what are the rules for calculating the tax on a foreign scholarship, you should first determine the source of income you are dealing with.

Pursuant to Art. 20 paragraph 1 of the PIT Act for revenues from other sources referred to in Art. 10 sec. 1 point 9, in particular: amounts paid after the death of a member of the open pension fund indicated by him to the person or a member of his immediate family, within the meaning of the provisions on the organization and operation of pension funds, cash benefits from social insurance, alimony, scholarships, subsidies (subsidies ) other than those mentioned in art. 14, surcharges, awards and other free benefits not included in the revenues referred to in Art. 12-14 and 17, and revenues that are not covered by disclosed sources.

As can be seen, the above provision lists scholarships in the category of revenues from other sources, which should be understood both as those paid by public law entities and private entities (foundations, private persons). Revenues from other sources are subject to taxation on general principles, which means that the tax scale specified in Art. 27 sec. 1 of the PIT Act. The foreign scholarship is income from other sources, which is subject to taxation on general principles. The taxpayer accounts for the tax on the scholarship in the annual tax return submitted by April 30 of the year following the year of receiving the scholarship at the latest.

Reduction in income from foreign scholarship

It is worth mentioning Art. 21 sec. 1 point 23a lit. and the PIT Act, which states that part of the income of persons residing in the territory of the Republic of Poland, who are subject to unlimited tax liability, temporarily staying abroad and receiving income from scholarships, is exempt from tax - in the amount equal to the diet for business trips outside the country , specified in the provisions on the amount and conditions for determining the amounts due to an employee employed in a state or local government budgetary unit for a business trip outside the country, for each day on which the scholarship was received.

As a consequence, the income from the scholarship may be reduced by the taxpayer by the amount equal to the allowance for business trips outside the country, specified in the provisions on the amount and conditions for determining the amounts due to an employee employed in a state or local government budgetary unit for a business trip outside the country, for each day on which the scholarship was received.

Example 1.

The Polish tax resident received a scholarship from a US foundation. Due to his scientific work, he stayed in the USA for 60 days. The allowance for a business trip to the US is $ 59. Consequently, in the annual tax return, the taxpayer's income from the foreign scholarship will be reduced by the equivalent of USD 3,540 (59 USD x 60 days). If the person receiving the scholarship is staying abroad, then for each day of receiving the scholarship he may reduce the income by the equivalent of the allowance.

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Foreign scholarship and 50% tax deductible costs

Finally, let's clarify one more point. Well, in terms of a foreign scholarship, it is not possible to include 50% tax deductible costs.

Remember that 50% of the costs apply to income from property rights, as provided for in Art. 10 sec. 1 point 7 of the PIT Act. Pursuant to Art. 18 of the Act, income from property rights shall be considered, in particular, income from copyrights and related rights within the meaning of separate regulations, rights to inventive designs, rights to topography of integrated circuits, trademarks and decorative designs, including the sale of these rights against payment.

As a consequence, 50% tax deductible costs do not apply to income from the scholarship that qualifies as income from other sources. This is the case, for example, of the Director of the Tax Chamber in Łódź in the interpretation of November 14, 2011, no. IPTPB2 / 415-501 / 11-2 / MP.

Therefore, going to the summary of the above considerations, we can indicate that the taxation of the foreign scholarship and the settlement of income tax on the foreign scholarship depend on several factors. The taxpayer should examine the content of the international agreement, the provisions on potential tax exemptions and the rules for qualifying income to the appropriate source. Only when all these actions are taken together will it be possible to answer whether the foreign scholarship is subject to taxation in Poland.