When a foreigner’s income must be taxed in Poland?
Natural persons liable to pay Polish personal income tax (PIT) on all of their income have to file, by the end of April this year, a tax return concerning income earned in 2015. Foreign persons who are tax residents of other countries should determine by that time whether they have to make the annual PIT settlement, and if yes, what income of a non-resident should be disclosed therein. In many cases, the obligation to make the PIT settlement, and so criminal liability, if any, for failure to do so rests personally with foreigners.
Below are described the general principles of taxation of certain remunerations received by foreigners from employment and other paid activity performed in the territory of Poland in 2015.
Remunerations paid by Polish entities
Income from employment
If a foreigner entered into an employment contract with a Polish employer and performed work in the territory of Poland, the employer was required to account for advances towards PIT during the year. However, the foreigner has to file the annual return by himself/herself, unless such settlement was to be made by the employer on the foreigner’s behalf, following the latter’s request, by the end of February (PIT-40). Income from employment is always taxed according to a tax scale with two rates: 18% and 32%.
In the case of other income earned in Poland, a Polish entity paying out remuneration will also withhold PIT thereon, however it will be a lump sum tax, which means that it is withheld on revenue, with no regard to tax deductible costs, at the lump sum rate. In such case the foreigner should receive IFT-1R form from the withholding agent. This form is used to disclose, among others, remuneration of directors (i.e. received on account of holding functions as management board members, supervisory board members in legal persons), revenue from services provided pursuant to contracts of assignment or contracts to perform specified work, revenue from managerial contracts).
A Polish entity paying out such revenues withholds a lump sum tax of 20% thereon, unless the agreement on the avoidance of double taxation between Poland and the country of residence of the foreigner envisages a lower withholding tax or exemption from that tax.
Income covered by IFT-1R information in principle does not have to be disclosed in the annual return. So, for example, remuneration of a foreign manager on which a Polish withholding agent has collected the lump sum tax of 20% does not have to be disclosed in the foreigner’s annual return filed in Poland.
It should be, however, noted that taxation of the foreigner’s remuneration with the lump sum PIT of 20% may turn out to be less beneficial than taxation of such remuneration in accordance with the so called “general rules” applied by a Polish resident, as the latter’s revenue may be decreased by tax deductible costs and social insurance premium and the tax may be decreased by health insurance premium. Certain foreigners may in such case file, by 30 April 2016, the annual return and tax their remunerations according to general rules, i.e. with deducting tax deductible costs, premiums towards mandatory and health insurance, and applying the tax scale. Eligible to annual settlement according to general rules are persons who are tax residents of EU Member States or other EEA member states or the Swiss Confederation, provided that tax authorities of such countries exchange tax information with the authorities in Poland based on concluded agreements on the avoidance of double taxation or other ratified international agreements to which Poland is a party. Foreign taxpayers who want to tax their income according to general rules have to prove their place of residence for tax purposes in such countries with a certificate of residence attached to the annual return. In such case, the lump sum of tax of 20% withheld on their income will be treated as an advance towards PIT in the annual return, and so it will be deductible from due tax.
Subject to similar rules residents of the above countries may deduct also premiums towards foreign social and health insurance. In some cases, those persons will be eligible for joint settlement with their spouse, which may be beneficial from tax perspective if differences in income are significant. The conditions for deducting foreign premiums and joint settlement with the spouse are laid down, respectively, in Article 26, Article 27b and Article 6 of the PIT Act.
Remunerations received abroad
Income from employment
The fact of receiving remuneration from a foreign entity does not mean that a foreigner does not have to pay Polish PIT. If paid activities are performed in the territory of Poland, a foreigner may be obligated to make PIT settlements both during the tax year and after its end in the annual return.
If a foreigner is employed with a foreign employer but performs work even partly in the territory of Poland, a relevant agreement on the avoidance of double taxation should be consulted in order to check where the remuneration is to be taxed. As a rule, international agreements establish the length of stay for a resident of one state in the territory of the other state which when exceeded require the foreigner to tax his/her income from employment in the state where work is actually performed. In many agreements it is 183 days (hence the so called 183 days rule), but the way of counting such days may differ.
After a specified number of days stayed in a given country has been exceeded, income should be taxed retroactively, and not only as of the moment when the limit has been exceeded. It should be also remembered that in order to determine the length of stay in another country, we take into account the days of actual presence in that country, not the days of work performance. A foreigner whose stay in Poland has exceeded a period specified in a relevant international agreement will have to determine what part of his/her income is attributable to activities performed in Poland and abroad. In most cases, such person receiving remuneration from a foreign employer will be obligated to pay advances towards PIT during the tax year. He /she will also have to file an annual return where advances due in the tax year and the tax for the year is to be disclosed.
A foreigner will not always wait with PIT settlement on remuneration from employment until the specified length of stay in Poland has been exceeded. Sometimes the obligation to settle PIT will arise upon commencing employment in Poland. It will be the case when remuneration is paid by a foreign entity but on behalf of a Polish entity having the role of the so called “economic employer”. If, for example, a foreigner is seconded by his/her employer to work for a Polish company that will be charged by the foreign entity with the costs of the foreigner’s remuneration, the Polish company may be deemed to be the economic employer, which means that the foreigner will have to settle advances towards PIT starting as of the first month of working in Poland. The employee will be also obligated to file the annual return in Poland.
In the case of remuneration from other than employment sources, a foreigner should also determine whether his/her income earned in Poland but paid by foreign entities are subject to tax in Poland or abroad. The point of reference in such case is a relevant agreement on the avoidance of double taxation between Poland and the country of tax residence of a natural person concerned. In general, if the activity of the foreigner in Poland was of independent nature, it will be decisive whether it was carried on by a fixed place of business or a permanent establishment within the meaning of the above agreement. For example, income from business activity pursued in Poland by a non-resident using an office located in Poland will be taxed in Poland in the part attributable to the activity carried on by that office.
In the case of income earned by foreigners in the territory of Poland, especially if remuneration is paid abroad, the settlement of PIT may be more complicated and in principle requires knowledge about the provisions of the Polish PIT Act and the international tax law. Therefore, ATA Finance prepares PIT settlements for foreigners, both with respect to advances towards tax and the annual return. Any questions in this regard may be addressed to: barbara.otrzonsek|atafinance.pl| |barbara.otrzonsek|atatax.pl