Remuneration of foreign members of the management board and supervisory board in Polish companies – where should income tax and social security contributions be paid?

From this article, you will learn:

• How tax will be charged in the case of foreigners serving as a management board member in a Polish company?
• In what situations foreign members of the supervisory board must pay health insurance contributions in Poland?

Foreign members of the management board and supervisory board of Polish companies who are not Polish residents (they are not subject to unlimited tax liability in Poland) may only be subject to taxation in Poland to a limited extent under the Personal Income Tax Act. Tax liability is only part of the problem related to settling debts in our country. Taxpayers should also analyse the requirement to pay social security and health insurance contributions in Poland.

Remuneration of foreign members of the supervisory board and management board and the issue of personal income tax – rules for paying PIT

We have already written about taxation and contributions related to remuneration of members of the management board and supervisory board who are Polish residents HERE. Now we will look at people who are not Polish residents and, at the same time, serve as members of the management or supervisory board of a Polish company.  

Settlement of income tax of a foreign member of the management board or supervisory board in a Polish company requires determining the place of taxation of income. The most important thing here will be to first determine the tax residence of a given person. 

Let us remind you that a Polish tax resident is a person who has their place of residence in Poland. 

A person residing in the territory of the Republic of Poland is a natural person who:

1. has a center of personal or economic interests in the territory of the Republic of Poland (the so-called center of vital interests), or
2. stays in the territory of the Republic of Poland for more than 183 days in a tax year.

If neither of the above conditions is met, we are dealing with a non-resident. This does not mean, however, that such a person's income will not be taxed in Poland.

A non-resident – i.e. a person who does not have a place of residence in Poland – is subject to limited tax liability. This means that in Poland they have to pay taxes only in the case of income they receive in Poland from, among others: employment contract, civil law contract or activity performed personally. 

Income from activities carried out personally, obtained in Poland by a non-resident not running a business, is subject to a flat-rate personal income tax of 20%. In turn, income from an employment contract or a civil law contract is taxed according to a progressive scale at the rate of 12% and 32%.

However, when it comes to the actual taxation of a given person, taxpayers should also refer to the provisions of the relevant double taxation avoidance agreement – only analysing its provisions will allow for the correct taxation of income earned by a given member of the management board or supervisory board in Poland.

Tax settlement is not everything – will a foreign member of the management board pay social security contributions in Poland? 

Apart from tax issues, remuneration paid to a foreign member of the management board or supervisory board of a Polish company may constitute the basis for calculating social security and health insurance contributions in Poland. 

It all depends on whether the income obtained as a result of serving as a member of the management board or supervisory board in Poland is the only income earned by the tax non-resident. 

If a given person also receives income from other countries, guidance on where the taxpayer will be subject to compulsory social and health insurance can be found in EU regulations or in bilateral international agreements concluded between the relevant countries. As a general rule, the applicable law in the field of social security is the law of only one country. 

In order to properly determine in which country social security and health insurance contributions should be paid, it is necessary to carefully analyse the facts and all sources of a given person's income. Therefore, each case requires an individualised analysis. If it is carried out properly, it will protect both the members of the bodies and the Polish company from the negative legal and financial consequences of possible errors when paying all types of taxes and liabilities. 

If you are interested in obtaining support in determining the tax consequences (and social security consequences) in connection with remuneration paid to foreign members of the management or supervisory board, we invite you to use the support of our experts.