More and more specialists, managers and employees from abroad decide to relocate to Poland – both within the framework of employment, remote work, and conducting business activity. One of the first questions after moving is: where and in what manner will income be taxed?
Below we present the general principles of taxation of individuals commencing tax residence in Poland.
Tax residence
The scope of taxation in Poland depends on determining tax residence. Pursuant to the PIT Act, a natural person has a place of residence in Poland (and therefore is subject to taxation on their worldwide income) if at least one of the following conditions is met:
- has in Poland a centre of vital interests (centre of personal or economic interests)
or
- stays in Poland for more than 183 days in a tax year
Meeting any of the above conditions, as a rule, results in the arising of unlimited tax liability. In turn, limited tax liability applies to persons who do not have a place of residence in Poland for tax purposes. In such a case, only income earned in the territory of Poland is subject to taxation in Poland, in particular remuneration for work performed in Poland, income from business activity conducted in Poland, rental of Polish real estate or remuneration for performing functions in the governing bodies of Polish companies.
Double taxation treaties
In the case of arrival in Poland, international tax treaties are also of key importance. Their purpose is to determine one state of residence, avoid double taxation and determine which state taxes a given income.
Most commonly applied methods:
- exemption with progression method – foreign income is not taxed in Poland but affects the tax rate
- proportional credit method – foreign tax is credited against Polish tax
Taxation of renumeration
The most common source of income for persons arriving in Poland is employment income – regardless of whether we are dealing with a classic relocation, remote work or temporary secondment within an international group.
The basic principle is simple: the place of actual performance of work is decisive. Performing work from the territory of Poland may result in Poland obtaining the right to tax remuneration regardless of the employer’s seat and the place of payment of remuneration. However, the final assessment depends on the employee’s tax residence status and the provisions of the relevant double taxation treaty.
In practice, the analysis also covers who bears the economic cost of the remuneration and who actually organizes and supervises the work (the so-called economic employer), which may be relevant when applying double taxation treaties.
A particular situation is temporary secondment to Poland within an international structure.
In the case of temporary secondment, the so-called 183-day rule resulting from double taxation treaties applies. Poland does not obtain the right to tax remuneration only if all three of the following conditions are jointly met:
- the stay in Poland does not exceed 183 days in a given period,
- the remuneration is paid by an employer who does not have its seat in Poland,
- the cost of the remuneration is not borne by an entity or permanent establishment in Poland.
If any of these conditions is not met, Poland may obtain the right to tax income from work performed in its territory.
Additionally, it should be determined who is responsible for withholding tax advances. If the foreign employer is not registered in Poland as a withholding agent, the obligation to pay tax advances may rest directly with the employee.
Performing work from the territory of Poland, both within the framework of relocation and remote work for a foreign employer, may result in the employee being subject to the Polish social security system (ZUS).
In the case of persons seconded from European Union countries, it is of key importance to hold a valid A1 certificate confirming coverage by the social security system of the sending state. In the absence of such a document or after the end of the secondment period, an obligation to be covered by the Polish social security system arises.
It should also be remembered that the long-term presence of an employee in Poland may in certain situations lead to the creation of a so-called permanent establishment of the foreign employer. This concerns in particular cases where the employee:
- has the authority to conclude contracts,
- conducts key negotiations,
- performs managerial functions.
This may result in tax settlement obligations in Poland on the part of the foreign company.
In the case of conducting business activity, the situation requires a separate analysis. If a person obtains Polish tax residence, Poland taxes their worldwide income from business activity. Even if the activity is formally registered abroad, performing it on a permanent basis from the territory of Poland may lead to the arising of a tax obligation in Poland, in particular in connection with the creation of a so-called permanent establishment. The place of actual conduct of business, making decisions and performing business activities is of key importance.
Available forms of taxation
The method of taxation in Poland depends on the form of employment. In the case of an employment contract or a management contract, the tax scale applies – currently 12% up to PLN 120,000 of annual income and 32% on the surplus above that amount.
Persons conducting business activity may choose one of several forms of taxation: the tax scale, a 19% flat tax or lump-sum tax on recorded revenues (with rates from 2% to 17% depending on the type of services). The choice should be preceded by an analysis of the level of costs, planned income and the impact of social security contributions.
What reliefs can be used when moving to Poland?
Polish regulations provide for a preference for persons who transfer their tax residence to Poland – the so-called return relief.
This relief consists in exemption from personal income tax of revenues up to PLN 85,528 annually for four consecutive tax years. The limit applies separately to each year.
The relief may be used by a taxpayer who:
- transferred their place of residence to Poland after 31 December 2021,
- for a period of at least three years preceding the return did not have a place of residence in Poland for tax purposes,
- meets additional conditions regarding citizenship or previous place of residence.
The relief covers, among others, income from employment, mandate contracts and business activity taxed under the tax scale, flat tax or lump-sum tax. The exemption does not apply to all sources of income (e.g. it does not cover capital income).
In practice, this means that in the first years after relocation part of the income may remain untaxed in Poland, which significantly reduces the effective tax burden.
It should be emphasized, however, that the return relief mainly concerns persons who previously lived outside Poland and only now transfer their tax residence here. Not every person arriving in Poland will meet the conditions for its application.
Additionally, entrepreneurs starting business activity in Poland may benefit from preferential rules regarding social security contributions (the so-called “relief for start” and preferential contributions for the first 24 months of activity), provided that statutory conditions are met.
Apart from the return relief, persons moving to Poland may benefit from other preferences provided for in Polish regulations.
In certain situations, it is also possible to benefit from:
- the IP Box relief (5% tax rate for qualified income from intellectual property rights),
- the R&D relief (deduction of research and development costs).
The scope of available preferences depends on the form of employment, the type of business activity conducted and the business model, therefore, it is always advisable to analyse the possibility of their application before commencing tax settlements in Poland, in which we will be pleased to assist you.
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Moving to Poland almost always involves a change in the tax situation. Determining tax residence is of key importance – it decides whether only income earned in Poland or also foreign income is subject to taxation.
At the same time, the Polish tax system offers solutions which, when properly planned, may be competitive, both in the case of employment and conducting business activity. The possibility to choose the form of taxation and preferences such as the return relief, IP Box or the R&D relief make Poland an attractive jurisdiction for specialists, entrepreneurs and managers operating in international structures.
However, each relocation should be preceded by tax and social security analysis. Proper structuring of the employment or business model already at the stage of moving allows avoiding double taxation, unforeseen obligations and disputes with tax authorities in the future.