Global mobility and settlement of foreign income in Poland – what should you remember?

From this article, you will learn:

• What are the tax consequences of income earned abroad?
• What is worth remembering when undertaking cross-border cooperation?
• Does working abroad affect social insurance?

Global employee mobility opens up new opportunities on the labor market, but it is also a challenge for employers. Traditional employment models are giving way to innovative solutions. New forms of global mobility in the labor market are primarily related to the development of technology, and the development of technology and flexible cooperation models create completely new opportunities – and new challenges.

There are various configurations of remote work: work for a foreign employer in Poland, work for a Polish company from abroad, virtual delegation, workation... each of these types of mobility contains at least one cross-border element that may determine a number of obligations of the employee and the employer. Before making a decision, it is worth verifying its potential consequences, especially in the area of tax liabilities. 

Below we present a short summary of guidelines for natural persons and legal entities.

Settlement of tax from abroad – personal income tax 

The effects of working abroad depend primarily on the employee's tax residence.

The tax residence of a given person should be assessed taking into account applicable legal provisions and all elements of a given factual situation (e.g. place of residence, place of actual work, place of residence of the immediate family, center of vital interests, etc.). Each employee's connection with a given country means a hypothetical possibility of having tax residence there.

If an employee's employment includes any cross-border element, the regulations of at least two countries with which he or she has connections will influence the determination of his or her tax situation. Therefore, in addition to national regulations, the key legal act will be an international agreement on the avoidance of double taxation concluded by the countries concerned. However, it may happen that no such agreement has been concluded between certain countries. This means there are no regulations regarding the avoidance of double taxation and, consequently, an increase in the risk of simultaneous taxation of income in both countries. 

Corporate tax

The employer should additionally monitor the risk of establishing a permanent tax establishment in the country where the employee performs work. Establishing a permanent tax establishment in another country may result in the employer being subject to corporate income tax in that other country.

The risk of establishing a permanent establishment will depend primarily on the type and nature of the work performed by the employee, but also on other circumstances – such as, for example, having appropriate premises for the employer's business activities in a given country. 

For the reasons mentioned above, the challenge is to formulate universal guidance for all taxpayers with income from abroad. There are many variables and connections between them that need to be taken into account. Therefore, it is worth discussing your situation with an experienced advisor to choose the most tax-advantageous solution.

Social and health insurance

When taking up work abroad, it is also worth checking which jurisdiction in terms of social insurance the employee will be subject to. What is decisive here are the acts of international law. Working abroad also requires verification of health insurance regulations, in particular which entity will be financially responsible for potential damage to the employee's health resulting from working abroad. 

It should be mentioned that the creation of an insurance obligation in another country may involve additional obligations for the employer – e.g. the obligation to register the employer as a contribution payer in a foreign system and all the consequences associated with it.

Other regulations useful when settling foreign income in Poland – labor law and administrative regulations

Performing work abroad requires meeting certain requirements imposed by administrative regulations. In order to work abroad, an employee may be obliged to register or register and obtain appropriate documents, such as a residence permit, work permit or work visa. This also involves meeting a number of requirements set out by the labor law of the country of residence, in particular elements such as occupational health and safety regulations, minimum wage, and rest periods.

Global employee mobility is associated with many risks on the part of the employee and the employer, and entities deciding on this form of work should be aware of this. It will be possible to identify specific risks in this area with the help of an experienced tax advisor. Our team of specialists will be happy to help you determine the best solution, tailored to your individual needs.