Foreign income and avoidance of double taxation, part AND

Persons who obtain income from contract work performed outside the country may be obliged to settle it also in Poland. This does not mean, however, that this income will be taxed twice - both in our country and in the country of earning. This is prevented by agreements on the avoidance of double taxation concluded between Poland and other countries. However, it is good to be aware of the obligations related to the possible need to settle income in our country and the related rules.

Determining the place of taxation

This is the first step you need to take. Determining the place of taxation will allow to determine whether a given person is subject to limited or unlimited tax liability in Poland. In this matter, please refer to the provisions of the Personal Income Tax Act (hereinafter: updof).

Pursuant to Art. 3 updof, natural persons, if they reside in the territory of the Republic of Poland, are subject to tax liability on all their income (revenues), regardless of the location of the sources of income (unlimited tax obligation).

On the other hand, a natural person who:

• has a center of personal or economic interests in the territory of the Republic of Poland (center of vital interests), or
• stays in the territory of the Republic of Poland for more than 183 days in a tax year.

If at least one of the above conditions is met, a given person is subject to unlimited tax liability. The second condition is easy to define. The problem arises with the first of them - how to define the center of life interests? According to the tax authorities, the mere fact of leaving for work, even if it lasts a long time, does not prejudge the transfer of the center of vital interests outside the country.

Tax offices are of the opinion that in this case it is necessary to consider having a center of personal or economic interests in a given country. Personal interests are family or social ties (in which country the immediate family resides: the spouse and children). On the other hand, economic interests are understood as the place of business or possession of property.

If a natural person does not meet any of the conditions described above (having a center of vital interests and staying outside the country for more than 183 days), it is considered that he or she does not have a place of residence in the territory of the Republic of Poland. Then, he is subject to tax only on income (revenues) achieved in the territory of the Republic of Poland (limited tax obligation).

Example 1.

In April 2012, Mr. Artur left for Germany to earn money, where he worked as an employed person until the end of the year. The trip was not planned permanently, because in Poland, Mr. Artur has a home and family (spouse and children). Despite staying outside the country for more than 183 days, he is subject to unlimited tax liability in Poland, because this is where his center of life is located. Therefore, the entirety of the income obtained in 2012 must be settled in Poland

Example 2.

In January and February 2012, Ms Anna worked in Poland under a contract of employment, while in March she left for Great Britain. There, for the remainder of the year, she worked as an employed person and took out a loan to buy an apartment in one of the localities. It can therefore be concluded that Ms Anna has personal and economic goals associated with Great Britain. Consequently, in Poland it is obliged to settle only the income obtained in January and February 2012.

Agreements on the avoidance of double taxation

International agreements stipulate when remuneration received by persons residing in one state for work performed in another state may be subject to taxation in the other state. This is the case when:

• are paid by a local employer
• they are borne by the establishment maintained by the employer in the other country,
• the employee stays in the other country for the period specified in a specific agreement on the avoidance of double taxation (most often it is 183 days in a tax year).

It does not mean, however, that the taxpayer has the right to freely choose the country in which the tax is to be paid. The agreements only specify in which country the taxation is to take place: where the source of income is located or according to the place of residence of the taxpayer.

Thus, remuneration obtained for contract work abroad, paid by an employer who has its seat in that state - is subject to taxation there (in a foreign state). If, in addition, the taxpayer has a place of residence in Poland (and thus is subject to unlimited tax liability), he will avoid the obligation of double taxation through the use of an appropriate method specified in a given international agreement.

Poland has signed agreements on the avoidance of double taxation with over 80 countries around the world, incl. with: Austria, Belgium, Belarus, China, Denmark, France, Greece, Spain, the Netherlands, Ireland, Japan, Canada, Germany, Norway, Mexico, Portugal, Russia, Sweden, Turkey, Ukraine, Great Britain and the USA. The full list of countries is available on the website of the Ministry of Finance.

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