Determination of tax residence should be the first of steps taken in order to defining the tax obligations of an employee seconded to work in Poland correctly. Employees seconded by foreign employers to work in Poland are obligated to calculate and pay monthly tax advances personally (self-assessment).
The third of the publications in series “12 Rules of the Cross-Border Secondment of Employees” focuses on the situation of seconding an employee to Poland. In this series we will present the most important issues related to the process of seconding employees to another country. 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 secondment of employees.
Tax residence – Polish regulations
Tax residence of the employees staying on the territory of Poland, should be determined according to the paragraphs of article 3 of the Personal Income Tax Act.
The first paragraph provides that:
Important
Natural persons, if their place of residence is in the territory of the Republic of Poland, shall be liable to pay tax on the entirety of their revenues regardless of the location of their sources (unlimited tax-paying liability).
A person residing in Poland is a taxpayer who meets at least one of two conditions, i.e. stays in the territory of Poland for more than 183 days in the tax year or has a center of personal (e.g. family) or economic interests here.
When calculating the period of secondment to Poland, all days on which the employee was physically present in Poland should be taken into account, including days off from work, such as weekends, holidays and sick days. Days spent outside Poland, regardless of the purpose of the trip, are not included in the 183 days.
It should be noted that according to article 4a of the Personal Income Tax Act, the provisions of article 3 should be provided while taking into account double taxation agreements (DTA) of which Poland is a party. Thus, the provisions of the DTA should be analyzed in the first order. This means that if the seconded employee has been recognized as a Polish tax resident and at the same time as a tax resident of the country from which he was seconded (on the basis of local regulations), a final decision should be based on the respective DTA provisions.
Income taxation – Polish regulations
In case of employee seconded to work on the territory of Poland we can distinguish three situations of which each will have different consequences for the taxpayer:
- An employee which has stayed in Poland for business needs for less than 183 days during the tax year (also according to the DTA provisions) and does not have a center of vital interests in Poland – the employee, as a rule, will not establish a tax liability in Poland,
- An employee which has stayed in Poland for business needs for more than 183 days during the tax year (also according to the DTA provisions) and does not have a center of life interests in Poland – the employee will establish a limited tax liability in Poland,
- An employee which has stayed in Poland for business needs for more than 183 days during the tax year (also according to the DTA provisions) and has a center of life interests in Poland – the employee will establish unlimited tax liability in Poland.
The first situation does not result in tax liability in Poland. The second situation means that the employee will have to pay taxes only on income obtained in Poland. The third situation means that the employee will have to pay taxes in Poland on his worldwide income, taking into account the rules contained in double taxation avoidance agreements.
Obligations of the employee seconded by a foreign employer to work in Poland
In case of seconding employee by a foreign employer to work in Poland, an employee is obligated to calculate and pay the amount of income tax personally. It is caused by the fact that, in the light of Polish tax regulations, there is no payer in the territory of Poland so employee must take over his obligations.
When calculating the amount of the advance payment, the employee can deduct tax base by statutory tax deductible costs applicable in Poland and paid social security contributions if the entity employing the seconded worker is based in one of the Member States of the European Union.
Summary
In order to correctly determine the amount of income and properly fulfill tax obligations in Poland, an employee delegated by a foreign entity must independently calculate and pay income tax advances. A thorough understanding of the regulations regarding tax residence and double taxation avoidance agreements is crucial for the correct settlement of taxes.
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
