Foreign-earned Income. Polish Tax – Part 1

Labour migration is something common and normal for Poles nowadays. EU membership has opened the door to work in many European countries. However, we sometimes fail to remember that wherever we earn our income, Polish State Treasury will always expect us to pay what we owe it, namely the income tax. Possible problems related to this issue will be presented on the example of a double taxation agreement between Poland and the Netherlands.[1]

Tax residence, or tax citizenship

Income tax is the tax paid as part of the income gained as a result of an employment contract, business activity and from many other sources. Pursuant to the Polish Personal Income Tax Act, every person whose place of residence is in the Republic of Poland, regardless of the place where the income has been gained (unlimited tax liability).[2] To put it simple, tax residence is like a tax nationality. Therefore, every person with a Polish place of residence is a Polish tax resident. And every Polish tax resident should pay his income tax in Poland, regardless of the place where the income has been earned. To make things easier, the Act specifies that a person with a Polish place of residence is a person whose centre of personal or economic interests in the Republic of Poland (centre of vital interests) or who has stayed in the Republic of Poland for more than 183 days during a tax year.[3] Thus, if we leave Poland to work abroad only occasionally and for a specified period, we will not break our relationship with Polish fiscal authorities. It is similar in the case of those who run their companies abroad, if you spent most of your time in Poland. It is also important that we leave Poland with an intent to return in a relatively short time. Polish administrative courts emphasise the need to treat each case individually, and take into account such factors as where the family of a given person stays and this person’s economic relationships.[4] Only leaving Poland permanently makes it possible to free yourself from the unlimited tax liability, although it is still a largely simplified statement.

Do we have to pay twice?

Why would we have to pay our income tax in Poland, if we usually pay it also in the place where we have earned it? Luckily, tax authorities are not that acquisitive, and they will not charge the income tax on the income which has already been taxed. On the condition that we will be honest with them, of course.

In order to prevent double taxation, abroad and in Poland, the Republic of Poland has entered a number of international agreements with other countries. In the case of Poland, it is the above mentioned CONVENTION between the Kingdom of the Netherlands and the Republic of Poland for the avoidance of double taxation with respect to taxes on income and capital, signed in Warsaw, on 13 February 2002 (Journal of Laws [Dz. U.] of 17 December 2003), hereinafter referred to as “the Convention”. It includes some solutions thanks to which the income tax can be paid only in one country, provided certain specified conditions are met, which are also determined in the Polish Act. These conditions will be presented in the next part of this article.

Adam Rajewski

Advocate, Grzybkowski Guzek Jackowski Adwokacka Spółka Partnerska