During the tax year, taxpayer may be subject to both forms of tax liability in Poland: limited and unlimited. Obligation to tax income correctly in the country of secondment lies with the taxpayer.
In the eighth of the publications in series “12 Rules of the Cross-Border Secondment of Employees” we discuss the issue of taxation of seconded employee’s income in other countries. 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 individual issue in details. The entire series of articles will be a compendium of general knowledge on the cross-border seconding of employees.
Loss of tax residence
In case where no double taxation agreement has been concluded between the home country and the country of secondment, the place of taxation of the seconded employee’s income should be determined on the basis of national legislation.
One of the main reasons why seconded employees lose their Polish tax residence is that they transfer their centre of vital interests – in the form of having close personal or economic ties to Poland. The transfer of the centre of vital interests involves a long period of secondment and a change of residence, e.g. moving with the family.
Nevertheless, the rules on tax residency are quite general, and each case should be considered individually. Moreover, in the case of determining the tax residence of an employee seconded to work in Poland, the provisions of the Polish PIT Act, the regulations of the country from which the employee was seconded and the provisions of the double taxation agreement should be taken into account.
Taxation of income
If the change of tax residence takes place during the tax year, the common practice is to divide the tax year into two periods, differentiated in terms of the taxpayer’s obligations. This is a common approach, but it should be borne in mind that some countries do not recognize a change of tax residence during the tax year. Therefore, it is important to coordinate activities regarding setting the date of change of residence between countries.
Important
Changing tax residence during the tax year involves being subject to unlimited tax liability in part of the year and limited tax liability in part. In this respect, it may be problematic to show these periods in annual tax returns, because at the moment the PIT-36 form does not provide for the possibility of reporting income as a resident and a non-resident at the same time.
Taxation of income – relevant legislation
In the presented situation, it is especially important to pay attention to adhere with the regulations of relevant tax acts.
After losing Polish tax residence and gaining tax residence in the host country, taxpayer should also pay special attention to the issue of taxable income under the regulations of the “new” country of residence.
It happens that certain categories of income, which are taxable in Poland, may be generally excluded from taxation and vice versa. Therefore, it is the taxpayer’s duty to obtain information in this respect.
Summary
The loss of Polish tax residence requires increased attention of the taxpayer to properly fulfill tax obligations in the new country of residence. It is crucial to correctly determine the moment of change of residence and apply the appropriate legislation when taxing income.
Changing tax residence brings many challenges, so it is important for the taxpayer to be aware of all legal regulations applicable both in Poland and in the country of delegation. This helps you avoid double taxation issues and ensure tax compliance.
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
