Relocation of employees in practice – tax implications and more (part 3) Taxation of income from work performed in Poland for a foreign employer

Katarzyna SADOWSKA
Tax Supervisor at RSM Poland

In the previous part of our series on the tax implications of employee relocation we discussed the labour taxation in double taxation agreements and how to properly fulfil tax compliance duties in respect of income earned by a Polish residents from work abroad. The topic we will present you this time is the proper taxation of a remuneration that a Polish resident receives for work performed for a foreign employer in Poland (e.g. working remotely), and, more specifically, the obligations related to the payment of income tax advances during the tax year.

If a Polish resident performs work for a Polish employer in Poland, the employee does not have to worry about such matters as advance income tax payments - all these duties are those of the employer. It is the employer's responsibility to correctly calculate such an advance, withhold it from the employee's salary and remit it to the tax office.

However, if the employer is a company based in another country, the burden of these obligations usually falls on the employee who is a Polish tax resident. This is because foreign employers prefer not to take on additional administrative costs of registration in Poland and are reluctant to provide their information to yet another tax authority.

At the same time, it is not uncommon for foreign businesses to use remote employees in Poland – especially in the context of the current coronavirus pandemic. Many foreign companies agree to their Polish employees changing the way they work and performing most of their tasks at home in Poland, in a remote work setting, and only coming to the company's headquarters abroad for matters requiring personal presence, e.g. once or twice a month. In such cases it may be necessary to pay advances on income tax in Poland – because this is where the employee actually performs his or her work.

At the same time, under the Polish Personal Income Tax Act, taxpayers (employees) who earn their income from employment relationships abroad directly without any paying agent (i.e. an employer registered at least for tax purposes in Poland) are obliged to make advance payments of income tax during the tax year without having to be officially requested to do so.

These advances should be paid monthly – by the 20th day of the month following the month in which the income was earned (e.g. by 20 February for January). The exception is an advance payment for December which must be made before the deadline for filing the tax return (i.e. before 30 April). Advances are calculated using the tax rate of 17% or 32%, after deducting monthly tax-deductible expenses and social security contributions paid from the gross income earned. In addition, the health insurance contribution paid from the taxpayer’s funds in a given month is also deducted from the advance payment calculated this way.

SUMMARY

A Polish resident performing work for a foreign employer in Poland is obliged to make advance payments of income tax. He or she has to calculate such advances and pay them to the tax office himself or herself, and this must be done taking into account the Polish tax laws. What is more, it is also often necessary to calculate and pay social security contributions on your own (we will write about this in the next part of our series). In order to address your needs, we are ready to provide assistance in this area. Do not hesitate to contact us and see what we can offer: [email protected].