In order to define tax obligations of a seconded employee correctly, first thing to be checked is tax residence. The employee’s tax residence determines what portion of income will be taxable in Poland.
The fourth of the publications in series “12 Rules of the Cross-Border Secondment” presents the situation of an employee seconded from Poland to work abroad and his tax obligations in Poland. In this series we will present the most important issues related to the process of seconding employees to Poland and from Poland. Each publication will present an individual issue in details. The entire series of articles will be a compendium of general knowledge on the cross-border seconding of employees.
Tax liability in Poland
The issue of tax residence was discussed in more detail in the previous article of this series. In the case of employees with their center of life interests in Poland, regardless of the number of days worked abroad, in most cases they will be Polish tax residents. This means that in Poland all income earned by an employee will be taxed, regardless of the place where he or she worked. However, income obtained abroad may then be exempt from taxation in Poland on the basis of the provisions of an appropriate double taxation agreement concluded between Poland and the country to which the employee was delegated.
In the case of longer period of secondment of employee from Poland, there can be a situation of changing tax residence due to the lack of strong private and economic ties in Poland. In indicated situation, there is a change in tax obligations in Poland – from the day of changing of tax residence, the income of the employee will not be subject to taxation in Poland.
According to the Interpretation of the Director of National Tax Information (0115-KDIT2-1.4011.386.2018.2.MST), the place of residence in the territory of the Republic of Poland is determined by having a center of personal or economic interests, which includes both family and social connections, social activity and conducting gainful activity, sources of income and investments and assets. The indicated premise, based on personal and economic criteria, may result in taxation of all income in Poland, even if the person has a family and most of his relationships outside the country.
Important
Additionally, it should be also noted that when there is no double agreement in place between Poland and other country, the income of the employer may be taxed twice – in Poland and in the country of work.
Obligations of the remitter – Polish regulations
The fact that an employee is seconded to work abroad does not release the employer from the obligations of the remitter. These obligations depend on the tax residence of the individual, so it is recommended to engage in discussion with the employee in this field to establish in which country is his center vital interests located. This will protect the payer’s interests and avoid possible complications.
As a rule, remitter has obligation to:
- calculate monthly income tax advances,
- pay the advances to the Polish tax office,
- issue PIT-11 information and deliver it to the employee after the end of the tax year.
However, according to article 32 paragraph 6 of the Personal Income Tax Act:
Important
Work establishment shall not charge income tax advance payments on income earned by an employee from work performed outside the territory of the Republic of Poland on the condition that the income is taxable or will be taxable outside the territory of the Republic of Poland.
Determining whether income will be subject to taxation in another country should be made, for example, on the basis of an appropriate double taxation agreement, taking into account the calendar of days of stay in individual countries. Such a calendar should be kept by every employee who performs work outside the territory of the country where his employer is located.
Regardless of whether the payer collects monthly advance payments from the taxpayer during the tax year and pays them to the tax office, or whether this obligation is excluded on the basis of the above-mentioned regulation, the payer is obliged to report the employee’s domestic and foreign income in the annual PIT-11 information.
In the case of people seconded to another country, employers often pay the employee additional benefits to cover the costs of accommodation or travel. Sometimes companies rent apartments directly or buy plane tickets for delegated employees.
However, in accordance with Directive 96/71/EC, transport and accommodation costs should not be included in the remuneration of a posted employee. The above is confirmed by the judgments of the Supreme Administrative Court of August 1, 2023 (II FSK 270/21), as well as of January 9, 2024 (II FSK 434/21; II FSK 1332/21) and of February 6, 2024 (II FSK 609/21).
The judgments of the Supreme Administrative Court constitute a breakthrough in the interpretation of tax regulations regarding benefits for posted employees. They confirm the compliance of Polish tax law with EU standards and provide greater legal certainty for both employers and employees.
Summary
In the case of employees delegated to work abroad, the obligation to pay income tax advances in Poland will be responsible of the Polish employer (unless this obligation has been excluded due to taxation of income in the country of work). It is also the employer’s obligation to prepare and provide the employee with annual income information.
In turn, the method of taxation of the income of an employee who has been delegated to work in another country will depend on the tax residence of this employee and the provisions of the double taxation avoidance agreement.
Co-author: Karolina Nieścior, Tax advisory services
The series of “12 Rules of the Cross-Border Secondment of Employees” consists of the following articles:
- Cross-border secondment of employees
- Secondment and delegation
- Employee seconded to work in Poland
- Employee abroad – taxes in Poland
- Secondment – social and health insurance
- Secondment – documentation
- Secondment – double taxation agreements
- Secondment – income taxation in different countries
- Secondment – annual tax return
- Cross-border secondment of workers Directive
- Secondment – tax advisor assistance
- Secondment – additional questions
