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.
Ministry of Finance Guidance Notes
The Guidance Notes on Taxation, dated 20 April 2021, issued by the Minister of Finance, provide helpful guidelines for assessing the tax residence. Importantly, a taxpayer’s compliance with the contents of the Guidance results in obtaining legal protection.
According to the Guidance Notes, personal links are the presence of family ties, social ties, involvement in social, cultural, sporting, political, etc. activities. In practice, the factor most often taken into account is the presence in Poland of a spouse, partner or minor children.
By economic links, however, the Minister of Finance understands the economic ties of an individual with a particular country, among which the place of gainful activity, the taxpayer’s main sources of income, investments held, movable and immovable property, loans taken out, bank accounts, the place from which the person manages his or her property, etc., are relevant.
Therefore, according to the Guidance Notes, in the substantial majority of cases, the country of residence will be the place of residence of the taxpayer’s immediate family (spouse/partner or minor children). Particular attention should be paid to this circumstance, especially by persons temporarily travelling abroad without their family to work.
Taxation of income
In case of a change of tax residence during the tax year, the practice is to divide the tax year into two periods, differentiated in terms of the taxpayer’s obligations.
A change of tax residence during the tax year involves being subject to unlimited tax liability for part of the year and limited tax liability for part of the year. It may prove problematic in this respect to show these periods in the annual tax returns, as at the moment the PIT-36 form does not provide for the possibility to show income as a resident and non-resident at the same time.
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.
In summary, the loss of Polish tax residence entails the need for the taxpayer to intensify its efforts in order to comply with its tax obligations in the country of “new” tax residence. It is necessary, first of all, to correctly determine the moment of the change of residence and to apply the appropriate legislation at the time of taxation of income.
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