Performing remote work from Poland for a foreign employer

This article will answer the following questions:

• What are the tax implications resulting from performing remote work from Poland for a foreign employer?
• What should a foreign employer have in mind when hiring specialists from Poland?

Polish tax residents pursuing employment on an international labour market due to more attractive financial opportunities or better work conditions, are more and more eager to opt for remote work as it allows them to stay at their current place of residence. On the other hand, those who left Poland some years ago seeking work abroad, benefit from new opportunities offered by the remote work scheme: to return home and yet continue employment at their foreign employers.  

What does the taxation of remote work look like in such cases? It’s time to have a closer look at the regulations governing cases involving employees working remotely from Poland for foreign employers.

Taxation of revenue of employees working at foreign entities: where to settle taxes and what is the role of tax residency?

Employee’s tax residency is of key importance when determining the place where the remuneration for work should be taxed.

Polish tax resident is an individual that resides in the territory of Poland. Individuals are deemed residing in the territory of Poland if:

1. they have a centre of personal or business interests in the territory of Poland (the so-called centre of vital interests), or
2. they stay in the territory of Poland for a period longer than 183 days per tax year. 

Under Art. 3 sec.1 of the PIT Act, remuneration of an employee residing in Poland is subject to tax in Poland, regardless of the place of the source of the remuneration.

It is of no importance that the employee performs work for a foreign employer – as long as they live in Poland and have their centre of vital interests here, their remuneration for work is taxed in Poland.

It may, however, happen that a portion of the remuneration of a Polish tax resident employed at a foreign business entity will also be subject to tax abroad. To be able to correctly account for the revenue, when determining the place of taxation (and the method that should be applied to avoid double taxation) it is key to consider the provisions of relevant international treaties on the avoidance of double taxation concluded by Poland with other states.

Who pays PIT advances in the event of remote work for a foreign employer? 

Remote work performed from Poland for a foreign business entity significantly affects the payment of PIT advances. 

According to Polish tax law, if an individual residing in Poland is employed at a foreign employer, the obligations related to accounting for the employee’s remuneration lay with the employer. The withholding agent (i.e. the employer) calculates and withholds from the taxpayer’s remuneration (the employee) PIT advances and remits them to relevant tax authorities before the statutory deadline.

The situation changes significantly where the employee of a foreign business entity resides in Poland and works remotely for an employer who does not have a branch in Poland. In such cases the obligations related to settling PIT lay with the employee. Then, as a rule, the foreign employer pays the employee the gross remuneration and the taxpayer (employee) remits PIT advances directly, without the intermediation of the withholding agent. 

It should be remembered that  this applies only where the employee is hired directly at a foreign employer and not at e.g. a Polish branch of a foreign business entity. 

Obligations of employees working remotely under a contract with a foreign business entity 

The employee remits PIT advances by 20th day of the month following the month when, as a Polish taxpayer, they received remuneration. December is an exception here as the tax should be settled by 30 April. 

Examples: 

• The employee received remuneration from a foreign employer for remote work performed from Poland on 25 May, thus the PIT advance should be paid by 20 June.
• The employee received remuneration from a foreign employer for remote work performed from Poland on 2 June, thus the PIT advance should be paid by 20 July.
  Additionally, a taxpayer remitting PIT advances directly files to a tax office an annual tax return. This is due by 30 April of the year following the tax year in question.

Additionally, a taxpayer remitting PIT advances directly files to a tax office an annual tax return. This is due by 30 April of the year following the tax year in question.

How to account for income tax when the remuneration is paid in foreign currency?

If the employee receives remuneration for work performed from Poland in a foreign currency, for PIT settlement purposes, the remuneration must be converted accordingly and the advance payment for tax must be paid in Polish currency.

The remuneration in a foreign currency is converted into PLN at the average exchange rate for foreign currencies, as announced by the National Bank of Poland. In order to settle the tax, the exchange rate from the last business day preceding the day of earning the remuneration should be applied.

Remote work from Poland: what else should you remember?

The law governing the taxation of remuneration of an employee working from Poland is not the only issue worth taken into consideration by foreign employers. It is also necessary to determine in which country the employee will be subject to social and health insurance. 

Hiring an employee in Poland may also expose the employer to the risk of creating a Permanent Establishment (PE) in Poland with respect to income tax and a Fixed Establishment (FE) with respect to VAT, which, in turn, may have a significant impact on the legal and tax status of the employer. Therefore, before making a decision to hire employees in Poland, we encourage you to contact RSM Poland specialists who will clarify for you all the issues that are relevant from the perspective of Polish tax law.