When do foreigners have to pay taxes in Poland?
If you live in Poland, your income is taxable here. If you move out, the Tax Office will claim the tax due on the amount you earned on the territory of Poland.
Tax Resident Status
According to the Act of 26 July, 1991 on personal income tax (Dz.U.2021.1128, i.e. – hereinafter referred to as the PDOF Act), the tax liability scope depends on the place of residence, and the taxation manner depends on the source of income. In other words, if you live in Poland, here you have to pay taxes, even if, for example, your employer is foreign. This is what we call “unlimited tax liability”. It happens when you have been living in Poland for more than half a year or this is where the centre of your life interests is located – i.e. outside of work, this is where your children go to school.
Art. 3. The tax obligation
1 Individual who resides on Polish territory is liable to tax on all their income (revenue) regardless of where the income is earned (unlimited tax obligation).
1a. A person residing on the territory of the Republic of Poland is considered a person who:
has on the territory of the Republic of Poland a centre of personal or business interests (centre of life interests) or
stays on the territory of the Republic of Poland for more than 183 days in a tax year.
If you work in Poland but do not live here, you are subject to “limited tax liability” – in Poland you pay taxes only on income earned in the territory of this country.
2a.Persons, if they do not have a place of residence in the territory of the Republic of Poland, are subject to tax only on income (revenue) earned in the territory of the Republic of Poland (limited tax liability).
Income (revenue) generated in the territory of the Republic of Poland by non-residents is considered in particular income (revenue) from:
– work in Poland based on a service relationship, an employment relationship, an outworking relationship and a cooperative employment relationship, regardless of the place where the remuneration is paid
– activities performed personally in Poland, regardless of the place of payment of remuneration
– business activity carried out in Poland, including a foreign establishment located here
– property located in Poland or rights to such property, including the sale of it in whole or in part or the sale of any rights to such property
– securities and derivative financial instruments that are not securities, admitted to public trading within a regulated stock market in Poland, including income obtained from the sale of these securities or instruments and the exercise of rights arising from them
– title to the transfer ownership shares in the company, all rights and obligations in a company that is not a legal person, or titles of participation in an investment fund, joint investment institution or other legal person and rights of a similar nature or due to receivables resulting from the ownership of these shares, all rights and obligations, titles of participation or rights – if at least 50% of the value of the assets of this company, a company that is not a legal person, this investment fund, this joint investment institution or legal person, directly or indirectly, constitute real estate located in the territory of the Republic of Poland or the right to such real estate
– title to transfer of ownership of shares, all rights and obligations, shares or similar rights in a real estate company;
– regulated receivables, including those made available, paid or withheld, by natural persons, legal persons or organizational units without legal personality, having their place of residence, registered office or management board in the territory of the Republic of Poland, regardless of the place of conclusion of the contract and performance of the service
– unrealised gains referred to in art. 30da of the PDOF Act.
Taxation of income from unrealised gains
What is unrealized profit? The following situations are subject to taxation on income from unrealised gains:
– when you transfer an asset (e.g. Home or car) outside the territory of the Republic of Poland
– When you move and there is a change in tax residence, as a result of which Poland loses the right to tax the income from the sale of the asset owned by you
Establishing a tax residence is a complicated process. It should be based on both the provisions of tax laws and relevant bilateral double taxation treaties. Correct determination of tax residency is crucial in the correct settlement of income for tax purposes.
Bilateral agreements between States
Double taxation conventions contain the definition of “resident of a Contracting State”, which means any person who, by the domestic law of that State, is liable to taxation there because of their place of residence or domicile.
Therefore, the place of residence is determined by the internal rules of the Contracting States. Sometimes that both countries wish to recognise one person as a “resident in a Contracting State”. In such a situation, the Polish or foreign tax residence should be based on agreements on the avoidance of double taxation.
How do we determine that? The explanations of the tax authorities, and generally accepted standards of conduct show that the place of residence of members of the taxpayer’s immediate family (wife, husband, children) is decisive for determining the centre of life interests of the taxpayer, while the location of the centre of economic interests of the taxpayer plays a special role for people who have not established a family.
Finding a proper place of residence is important for the IRS as well as for you. By the time of salary payment, you should know what provisions of the Polish Income Tax Act to apply, what income tax to collect (advance payment or flat-rate tax), what annual information to prepare (PIT-11 or 1FT-IR) and to which tax office this information should be provided.
If the provisions of a particular agreement on the avoidance of double taxation give the Polish party the possibility of taxing the income (revenue) of persons not residing in Poland, then following the primary principle resulting from the Polish Personal Income Tax Act, these income are taxed on a general basis, i.e. according to the tax scale. An exception to this rule applies to some income (revenues) listed, among others, in art. 29 (1) of the PDOF Act, which is taxed with a lump sum.
Work on employment contract
Under agreements to avoid double taxation, income from employment is taxed in the country where you live, unless the work is carried out in another country. In other words, if you live and work in Poland, you pay taxes in Poland, and if you live in Poland and work in Ukraine, you pay taxes in Ukraine.
However, if you work for a Ukrainian company, but you do your work in Poland (remotely or physically) and live here, then you have to pay tax to the Polish tax office, not to the Ukrainian tax office. By Polish regulations, income from work performed on the territory of Poland is taxed in Poland regardless of the place of payment of remuneration. Therefore, the place of work is so important for resolving the issue where the remuneration of a foreigner for the work performed is subject to taxation.
Foreigners working in Poland are subject to taxation on the same terms as Polish employees, it does not matter whether the foreigner resides in Poland or is subject to unlimited or limited tax liability.