Tax on winnings in a foreign competition or tournament: how to clear it with Polish tax authorities?

This article will answer the following questions:

• Is prize money won in a foreign competition or tournament subject to tax in Poland?
• What tax should be paid in Poland on prizes won abroad?
• What if the tax on winnings in a foreign competition is payable in the country where the competition was held?

If a prize is awarded to a Polish tax resident in a competition or tournament held in another country, it is necessary to consider where this prize should be taxed. This is, however, not the only problem – doubts may also arise where tax on the winnings has already been paid in the country where the competition was held. Does the Polish taxpayer then have any obligations towards the Polish tax authorities and should they pay tax again?

What do Polish regulations say about the taxation of prizes won in competitions?

In Poland, income obtained from winnings and prizes won in competitions held in the European Union (or another state of the European Economic Area) is, as a rule, subject to a flat-rate income tax of 10%.

However, please bear in mind that the condition enabling the application of the above regulation is that the income from the prize received must be subject to tax in Poland at all. 

Tax treaties are of help where there are tournament prizes to account for

When analysing the issue of taxation of prizes won by Polish tax residents in tournaments or competitions held abroad, it is necessary to first check whether the country in which the prize was won has concluded a double taxation agreement (DTA) with Poland. Then it is necessary to analyse the provisions of the agreement; most of these documents contain regulations providing for the exemption from taxation in the country of residence (in this case Poland) of income obtained from artistic activity in a given country.

These regulations apply, for example, to stage, film, radio and television artists, as well as musicians and athletes.

The fact that a foreign prize is taxed in the source country does not mean that the income from prizes awarded in other countries will not affect the process of accounting for taxes in Poland. 

Depending on the double taxation avoidance method employed in the tax treaty concluded with a given country, the tax paid in another country will be deductible from the tax due in Poland (proportional deduction method, also known as the credit method) or will affect the tax rate payable in Poland (exemption with progression method).

Practical example of settling tax on foreign prizes won in sports tournaments

A Polish golfer receives prizes for ranking high in golf tournaments held both in Poland and other countries, including Germany. Under Article 17 paragraph 1 of the Agreement between the Republic of Poland and the Federal Republic of Germany for the avoidance of double taxation, the income will be taxed in Germany. However, in accordance with the method of avoiding double taxation applied in this agreement – i.e. under the exemption with progression method – the value of the prize will affect the tax rate applied in Poland, which will be used to tax the golfer's other income (taxable in Poland).

This example was based on the ruling of the Supreme Administrative Court of 6 December 2022, Court File Ref. No. II FSK 989/20.

Obligations of taxpayers winning foreign prizes towards Polish taxman 

If a Polish competitor (being a Polish tax resident) wins a prize in a tournament held in another country where (pursuant to the relevant tax treaty) tax is charged, the said prize winner is generally obliged to recognise this income in their annual PIT-36 return and to submit this tax return together with the PIT/ZG attachment. These documents should show the income derived abroad.

As accounting for income earned abroad may raise serious doubts and practical problems, we strongly encourage all individuals generating such income to seek the support of our experts.