Foreign employer, Polish employee – what about taxes?

More and more Poles are deciding to work remotely for foreign companies. Sometimes this means physical travel and daily work outside the country, but just as often the work is done in Poland and professional duties are performed from a home office, co-working space or even a café – for employers in Germany, the Netherlands, the United Kingdom, the United States or Scandinavia.

Although this form of employment is modern, flexible and adapted to today’s labour market realities, tax and insurance issues are not keeping pace with this revolution and can be surprisingly complicated.

Place of taxation of income – what determines it?

The key factors in determining the place of taxation of income are tax residence and the country where the work is performed.

Under Polish law, if a person stays in Poland for more than 183 days in a calendar year or has their centre of personal or economic interests here, they are considered a Polish tax resident.

In practice, this means that all income of such a person – both earned in Poland and abroad – should ultimately be declared in their annual tax return in Poland.

It is worth noting that many countries have similar rules on tax residence, which is why Poland has concluded a number of double taxation agreements to prevent situations where a person would have to pay tax twice – in their country of residence and in the country where their employer is based.

Working in Poland, foreign employer

If a person lives and works in Poland and is employed by a foreign company, their income should, as a rule, be taxed in Poland. The employee is therefore responsible for settling their tax liability with the Polish tax authorities. A foreign employer usually has neither the obligation nor the possibility to pay PIT advances or social security contributions in Poland. It is the employee, as a natural person earning income from abroad, who must pay income tax advances on a monthly basis and then file an annual tax return, usually on the PIT-36 form.

It is worth emphasising here that the failure of a foreign employer to pay advance payments does not release the employee from their responsibility – this is one of the most common mistakes made by people taking up remote work for foreign companies.

Working abroad and in Poland – what then?

The situation is different when a person physically performs work outside Poland – for example, they are employed by a German company and actually work in Germany, but also work in Poland on some days.

If the person remains a Polish tax resident (e.g. has a family in Poland or returns to the country after the end of the project and stays in Poland for more than 183 days), foreign income – for work actually performed abroad – must be included in the annual tax return in accordance with the double taxation avoidance method resulting from the agreement concluded with the country of employment.

Depending on the provisions of the double taxation agreement between Poland and the country concerned, the following applies:

• the exemption with progression method – foreign income is not taxed in Poland, but affects the determination of the tax rate for other income (e.g. from other income from work in Poland, social security benefits or business activity taxed according to the tax scale);
• the proportional deduction method – income is taxed both abroad and in Poland, but the tax paid abroad can be deducted from the liability to the Polish tax authorities. In addition, the taxpayer is entitled to an abolition relief of PLN 1,380.

However, with regard to income attributable to work in Poland (e.g. a few days a month), tax should be paid in Poland. It will therefore be necessary to calculate the proportion of income taxable in Poland and pay advance payments during the tax year, and then declare this income as work from a foreign employment relationship performed in Poland. Therefore, no method of avoiding double taxation will apply to this income.

Annual settlement – what should you remember?

Every taxpayer who earns income from abroad and is a tax resident in Poland is required to include income received from a foreign employer in their annual tax return. In the case of work for a foreign employer, regardless of the form of employment (contract, agreement), the most commonly used form is PIT-36. PIT/ZG must be attached to the tax return if the remuneration from a foreign employer was paid for work performed abroad. If the work was performed entirely in Poland, PIT/ZG is not required.

The PIT-36 form is used to report total income, both domestic and foreign, and to settle the tax due in Poland. The PIT/ZG attachment is used to provide a detailed list of foreign income and taxes paid abroad.

It is also worth remembering that you are required to have documents confirming the amount of income and tax paid abroad, e.g. foreign pay slips, annual statements from your employer or certificates from local tax offices. The lack of such documents may hinder the correct settlement and, ultimately, lead to the need for corrections and payment of interest.

Summary

Employment with a foreign employer, although increasingly common and often financially beneficial, entails additional tax obligations. It is crucial to determine your tax residence, the place where you actually perform your work and to be familiar with the rules arising from international agreements.