Workation and Remote Work in Poland – Flexible Working Models with Tax Risks?

Introduction

It has become common and widely accepted for individuals in Poland to perform work for employers based abroad. As the holiday season approaches, many employees may also be considering taking on temporary work in Poland (a 'workcation').

However, this flexibility can cause significant tax issues for both employees and employers. We have outlined the key areas of risk associated with remote working from Poland below.

Definition of a permanent establishment

A key concept in all of these scenarios is the so-called 'permanent establishment' (‘PE’), which is defined as 'a fixed place of business through which the enterprise carries out its activities'. According to the OECD guidelines, a ‘permanent establishment’ arises where specific premises are used on a long-term basis for the purpose of carrying on business. In practice - a PE is usually linked to a specific location used for business activities. 

Work from home in the context of PE

In line with the consensus among Polish administrative courts, working from home on behalf of a foreign employer generally does not result in the creation of PE for that employer in Poland. This is due, among other things, to the fact that, in such situations, the employer has no legal title to the premises where the employee carries out their duties.

Working from home may result in the creation of PE only in specific situations, which include, for example:

• work is carried out by someone who has the authority to make key decisions on behalf of the employer, effectively acting as their local representative or

• the employer provides the employee's home address for correspondence.

Therefore, in the vast majority of cases, working from home will not result in the employer being deemed to have a permanent establishment in Poland.

However, the situation changes completely when an employer decides to rent an office (or other property) in Poland and make it available to their Polish-based staff.

Office rental in Poland

If a foreign business decides to rent premises in Poland and make them available to its employees, this will very likely result in the establishment of PE in Poland. 

This situation gives rise to a wide range of obligations for the employer in Poland.

The impact of the creation of the permanent establishment in Poland – taxes

As a general rule, companies’ income is taxed in the country where they have their registered office. However, if a business has a permanent establishment in Poland, the income attributable to that establishment should also be subject to Polish income tax.

In practice, creating a permanent establishment in Poland has several consequences, including: 

• the need to obtain a Polish tax identification number (NIP),

• the need to ensure compliance with Polish tax regulations,

• monthly reporting of the entity’s income to the Polish tax office.

The impact of the creation of the permanent establishment in Poland – employees

The establishing of a PE in Poland also re-quires a change in how employees working in Poland are accounted for.

From the moment the PE is established, the employer must pay the following on behalf of their employees each month:

• advance payments of personal income tax to the Polish tax office, 

• social security contributions to the Polish Social Insurance Institution (ZUS).

If the above obligations are not complied with, a fine may be imposed by the Polish tax authorities.

Workation

The rules described above may also apply to people coming to Poland for a so-called ‘workation’. However, the risk in such cases is significantly lower due to the temporary nature of such trips. This means that occasional work carried out from within Poland should not result in any tax consequences, either for the employer or for the employees.

Examples

A permanent establishment in Poland will not be established if

• the employee carries out work in Poland from their own premises, without having the authority to en-ter into contracts or make key decisions on behalf of the employer,

• the employee is temporarily carrying out duties from within Poland (e.g. during a workation).

A permanent establishment in Poland may be established if

• the employee carries out work in Poland from premises rented or paid for by a foreign employer,

•  the employee carries out work from their own premises in Poland but has the authority to enter into key contracts on behalf of the employer.

Conclusions

The mere fact of working remotely from within Poland does not in itself necessarily mean that a tax establishment is created in Poland. 

However, extra caution should be exercised in situations where:

• the work is carried out from an office rented (or paid for) by the employer,

• the work is carried out by a person who has the authority to make key decisions or enter into significant contracts on behalf of the employer (relating to their core business) or

• the address at which the work is carried out is given as the correspondence address for the employer in question. 

Each of these situations may result in the creation of a permanent establishment in Poland and, consequently, the need to tax part of the income earned by the employer in Poland.

Author: Marek Michalski