Personal Income Tax (PIT) for foreign nationals Q&A
The end of the year and the start of a new one is a time when not only the employers but also the employees begin to think about their tax reporting obligations. The tax obligations of some of the taxpayers, in particular those of the foreign nationals, are often less clearly understood than those of the Polish citizens. Non-Polish taxpayers run up against a number of barriers, including language skills and the difficulty getting through the relevant tax rules. Neither bodes well for successful compliance with their tax reporting requirements.
The questions often asked include:
Uncertainty may arise especially with regard to the position of those foreign nationals who are employed in Poland or who carry on business activity here. To help clear up some of the doubts you may have, we have prepared answers to frequently asked questions. These are based on common scenarios and should go some way, we hope, towards finding the right solutions and clearing up confusion surrounding your tax obligations.
Frequently asked questions
Taxpayer circumstances: My family and I have been living in Poland for over a year but I work remotely for a company based in my home country. My employer withholds my tax in my home country, which is also where my salary is paid into my bank account. Am I liable to any tax in Poland?
Liability to tax under an employment agreement depends on the personal circumstances of the taxpayer / foreign national, and on the Polish and international tax regulations. Moreover, the sole fact that tax is paid in the taxpayer’s home country does not mean that the taxpayer is not liable to tax in Poland.
Under the general rules, employment income is taxed in the country in which the work is done. Where work is done remotely, it is of secondary importance that the employer is located outside Poland – work done remotely from Poland is deemed to be work done in Poland. In principle, income arising under such an arrangement is by law taxed in Poland.
The applicable rules are also set out in the provisions of the relevant double tax treaties. Double tax treaties contain exceptions to the general rules and link the place of taxation to, among other things, the length of the taxpayer’s stay in Poland, location of the employer’s registered office, and who is the actual beneficiary of the income generated by the work done. Which tax rules apply is also guided by the taxpayer’s tax residence status.
In this case, in view of the fact that the employee and his family have spent over a year residing in Poland, he is deemed to be a Polish tax resident. Thus, he is liable to income tax in Poland starting from the first day of his stay in Poland.
The fact that the employee’s salary is paid into an overseas bank account does not relieve him of his liability to tax on his employment income in Poland. Moreover, it is well worth bearing in mind that most countries operate an automatic exchange of information scheme whereby the tax authorities of one country, say Poland, can seek information about the employee’s other income from their foreign counterparts.
Taxpayer circumstances: I stayed with my wife in Poland for 10 months and, during this time, I worked in Poland under an employment agreement with a Polish company. Since November I have been living and working in another country (EU member state). The work I do is for a company in the country I moved into and it is this company that pays my salary. My wife is still living in Poland but is planning to move in with me in March 2020. Which country should I pay tax on my income in?
Taxation of income earned under an employment agreement is determined by the place where the liability to tax arises, your tax residence status, and the choice of method of avoiding double taxation.
Under the general rules, income from work done in a given state is taxed in that state. Thus, income earned on work done for a Polish employer is subject to tax in Poland, while income earned in another state is taxed in that state.
Is income generated abroad also taxed in Poland? In order to answer this question, it is helpful to familiarize ourselves with two terms: the tax resident and non-tax resident status in Poland. A Polish tax resident is a taxpayer subject to unlimited tax liability, that is, liability to pay tax in Poland on their world-wide income. A non-tax resident, on the other hand, is a taxpayer with tax liability limited to his Polish source income or income earned for work done in Poland.
The tax residence status is determined by reference to Polish and international law. It depends on how long the taxpayer has stayed in the given country in a tax year and on where he or she pursues their vital personal and economic interests.
Since the employee in our example has stayed in Poland in 2019 for a period longer than 183 days, and since his wife has stayed in Poland throughout 2019, he will be deemed to be a Polish tax resident with unlimited tax liability.
In view of the above, he will have to report for tax purposes his income earned abroad in both countries. If Poland and the other country have signed a double tax treaty however, tax on his income will be worked out by reference to the method set out in that tax treaty.
Generally, there are two such methods: the exemption with progression method and the tax credit method. Thus, the taxpayer’s reporting and paying requirements depend on which method is chosen to avoid double taxation.
Taxpayer circumstances: I have been working in Poland for the last 5 years. I have an employment agreement with a Polish employer. This year, I let out my flat in my home country (EU member state) and paid tax on rental income to the relevant tax authority. Do I have to report my rental income for tax purposes in Poland as well?
As with taxation of employment income, the key issues are the place of taxation and the taxpayer’s tax residence status.
Double tax treaties provide that rental income is taxed in the country where the property is located. The taxpayer will thus be liable to tax in his home country.
This is where the question of the tax residence status comes in. Given the taxpayer’s extended stay in Poland, he is most likely a Polish tax resident. Consequently, the taxpayer will have to report his rental income for Polish tax purposes as well.
The next step is to check the provisions of the relevant double tax treaty. Should the applicable tax calculation method turn out to be the exemption with progression method, the rental income will not give rise to effective taxation but will push up the tax rate on income from other sources. Where the appropriate method is the tax credit method, rental income arising abroad will also come into charge in Poland, with the taxpayer being able to claim the input tax paid in his home country against the output tax due in Poland.
Taxpayer circumstances: I have been living in Poland for the last two years and paying tax in Poland as a Polish tax resident. Before moving to Poland, I lived in my home country (EU member state) where I continue to have a bank account. My interest-bearing account pays about EURO 30 in annual interest on the rather small amount of money left in it. Do I have to report this income in Poland?
Most definitely yes. As a Polish tax resident, the taxpayer has to report any income on savings in bank accounts held outside Poland. It makes no difference that the bank account was opened before the taxpayer moved to Poland, that the amount in it is insubstantial, and that the tax on any interest income has already been paid abroad.
If the taxpayer has paid tax in his home country, he can deduct some of the tax paid on interest income in his Polish tax return in accordance with the relevant double tax treaty.
Similar rules apply to dividend income.
It is worth bearing in mind that the tax authorities in different jurisdictions share information about the taxpayers’ income sourced in multiple jurisdictions under the Common Reporting Standard (CRS) scheme.
Taxpayer circumstances: I have been living in Poland for the last 3 years, but I am a foreign national (citizen of another EU member state). In 2019, I sold my shares in a company in my home country and in another company in a third EU country. I had originally bought these shares before moving to Poland. Is my income from the sale of shares subject to Polish tax?
Pursuant to the applicable double tax treaties, capital gains (with some exceptions) are subject to tax in the country of tax residence. As the taxpayer is most likely a Polish tax resident at the time of sale of shares, he is liable to tax only in Poland, with the taxation of his income being governed by the Polish tax regulations.
It is of no consequence that the shares had been purchased when the taxpayer was non-tax-resident in Poland. Any income from the sale and the original cost of share purchase should be converted into the Polish currency at the applicable rates, and the difference brought to charge at 19% and reported in the Polish tax return: PIT-38.
Taxpayer circumstances: I am a foreign national living in Poland for the last 2 years. I derive my income from my own business activity. My business is registered in another EU member state. My key clients though are Polish companies. Do I have to report my income for tax purposes in Poland?
Taxation of income from self-employment is a very complex area.
Income derived in this way can be taxed in the country where the taxpayer’s business is registered. However, if the taxpayer operates a permanent place of business (permanent establishment) in another country, his income can be partially taxed in that country too.
A permanent establishment is a placed used to carry on a trade, any other type of independent activity or to run a business. Examples of a permanent establishment include: a place of management, a branch, an office, a factory, a workshop.
Where the whole business infrastructure is located in Poland and the whole activity is indeed carried on in Poland, income from the activity should be taxed in Poland, even if the business is actually registered in another country.
Taxpayer circumstances: In November 2019, I moved to Poland, where I work for a Polish company. Previously I lived and worked in another country – an EU member state. My wife lives with me in Poland but is not gainfully employed. I have heard that it is beneficial for spouses to file a joint tax return in Poland. Can I take advantage of this option?
Filing a joint tax return generates a tax advantage where the spousal incomes are at different levels.
In order to be eligible for this form of taxation, the following conditions must be met jointly:
Joint filing is also possible where the taxpayer is tax resident in another EU member state, a country being a member of the European Economic Area, or in Switzerland, provided at least 75% of income is taxed in Poland. A certificate of tax residence is required if the taxpayer elects to make such filing.
Taxation of foreign nationals’ income is a highly complex and multi-faceted issue. The multitude of applicable laws, including diverse regulations in the relevant double tax treaties, may make it difficult for the taxpayer to take full advantage of his rights and choose the correct filing method.
In you have any doubts, we will be pleased to help you find the answers to the vexing tax questions and guide you through your tax filing process.
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