When a foreigner lives in Poland, all their income is taxed in our country. If a foreigner lives outside the territory of the Republic of Poland, the Tax Office will only claim tax on money earned within the territory of Poland.

Tax resident status

According to the Act of July 26, 1991, on Personal Income Tax (Journal of Laws 2021.1128 consolidated text – hereinafter referred to as the PIT Act), the scope of tax obligation of a natural person depends on their place of residence, and the method of taxation depends on the type of source of income. The Act does not define the term “foreigner” or “foreign person”.

In connection with the above, if a natural person has a place of residence in the territory of the Republic of Poland, they are subject to tax obligation on all their income (revenue) regardless of the location of the sources of revenue.

In such a case, according to Art. 3(1) of the PIT Act, such a person is subject in Poland to the so-called unlimited tax obligation (has tax resident status in Poland):

“Art. 3. [Tax Obligation]

1. Natural persons, if they have a place of residence in the territory of the Republic of Poland, are subject to tax obligation on all their income (revenue) regardless of the location of the sources of revenue (unlimited tax obligation).

1a. A person having a place of residence in the territory of the Republic of Poland is considered to be a natural person who:

1) has in the territory of the Republic of Poland the center of personal or economic interests (center of vital interests) or

2) stays in the territory of the Republic of Poland for more than 183 days in a tax year.”

Non-resident status

However, if a natural person does not have a place of residence in the territory of Poland, they are subject to tax obligation only on income (revenue) earned in the territory of Poland. Then such a person is subject to limited tax obligation in Poland (has non-resident status),

“2a. Natural persons, if they do not have a place of residence in the territory of the Republic of Poland, are subject to tax obligation only on income (revenue) earned in the territory of the Republic of Poland (limited tax obligation).”

Income (revenue) earned in the territory of the Republic of Poland by non-residents is considered in particular income (revenue) from:

• work performed in the territory of the Republic of Poland based on a service relationship, employment relationship, outwork, and cooperative employment relationship, regardless of the place of payment of remuneration;
• activities performed personally in the territory of the Republic of Poland, regardless of the place of payment of remuneration;
• business activity conducted in the territory of the Republic of Poland, including through a foreign establishment located in the territory of the Republic of Poland;
• real estate located in the territory of the Republic of Poland or rights to such real estate, including from its disposal in whole or in part or disposal of any rights to such real estate;
• securities and derivative financial instruments that are not securities, admitted to public trading in the territory of the Republic of Poland within the regulated stock market, including obtained from the disposal of these securities or instruments and from the exercise of rights resulting from them;
• by virtue of the transfer of ownership of shares (stocks) in a company, all rights and obligations in a company that is not a legal person or participation titles in an investment fund, collective investment institution or other legal person and rights of a similar nature or by virtue of receivables resulting from the possession of these shares (stocks), all rights and obligations, participation titles or rights – if at least 50% of the value of assets of this company, company that is not a legal person, this investment fund, this collective investment institution or legal person, directly or indirectly, constitute real estate located in the territory of the Republic of Poland or rights to such real estate;
• by virtue of the transfer of ownership of shares (stocks), all rights and obligations, participation titles or rights of a similar nature in a real estate company;
• by virtue of receivables regulated, including made available, paid or deducted, by natural persons, legal persons or organizational units without legal personality, having a place of residence, registered office or management in the territory of the Republic of Poland, regardless of the place of conclusion of the contract and performance of the service;
• unrealized profits, as referred to in Art. 30da of the PIT Act.

Taxation with tax on income from unrealized profits

The following are subject to taxation with tax on income from unrealized profits:

• transfer of an asset outside the territory of the Republic of Poland, as a result of which the Republic of Poland loses the right to tax income from the disposal of this asset, with the transferred asset remaining the property of the same entity;
• change of tax residence by a taxpayer subject to unlimited tax obligation in the Republic of Poland, as a result of which the Republic of Poland loses the right to tax income from the disposal of an asset owned by this taxpayer, in connection with the transfer of their place of residence to another state.

Determining tax residence is a multi-faceted process and should be done based on both tax act provisions and relevant bilateral agreements on the avoidance of double taxation. Correctly determining tax residence is crucial in the proper settlement of income earned for tax purposes.

Bilateral agreements between countries

Agreements on the avoidance of double taxation contain the definition of “a person having a place of residence in a contracting state,” which means any person who, according to the internal law of that state, is subject to taxation there due to their place of residence or place of permanent stay. Therefore, the internal provisions of the contracting states decide on the place of residence of a given natural person. In the case where each of the contracting states, based on its own provisions, considers a natural person to have a place of residence in its territory, there is a collision of provisions determining the tax residence of that person. In such a situation, Polish or foreign tax residence should be determined based on agreements on the avoidance of double taxation.

From the explanations of tax authorities and generally accepted norms of conduct, it appears that for determining the center of vital interests of a taxpayer, the place of residence of members of their immediate family (wife, husband, children) is primarily decisive, while for people who have not started a family, the location of the taxpayer’s center of economic interests plays a special role.

Properly determining the place of residence of a natural person is very important not only for determining the scope of tax obligation in Poland of that person but also for Polish entities acting as payers. The payer must know at the moment of payment of remuneration which provisions of the Polish income tax act to apply, what income tax to collect (advance or flat-rate tax), what annual information to prepare (PIT-11 or IFT-1R) and to which tax office these information should be sent.

In the case where the provisions of a particular agreement on the avoidance of double taxation give the Polish side the possibility to tax income (revenue) of persons not having a place of residence in Poland, then according to the overriding principle resulting from the Polish Personal Income Tax Act, this income is taxed on general principles, i.e., according to the tax scale. An exception to this principle concerns certain income (revenue) mentioned, among others, in Art. 29(1) of the PIT Act, which are taxed in a flat-rate manner.

Work based on an employment contract – hired work in the territory of Poland

Under agreements on the avoidance of double taxation, income from hired work is subject to taxation in the state in which the natural person has a place of residence, unless the work is performed in another state. If the work is performed in another state, then the remuneration received for it may be taxed in that other state. Which means that the provisions of the agreements give the possibility to tax income also to that state in the territory of which the natural person performs work, although they do not have a place of residence there.

According to Polish provisions, income from work performed in the territory of Poland based on a service relationship, employment relationship, outwork, or cooperative employment relationship is taxed in Poland regardless of the place of payment of remuneration. Therefore, the place of work performance is so important for resolving the issue of where a foreigner’s remuneration for work performed is subject to taxation.

Foreigners working in Poland are subject to taxation on the same principles as Polish employees, it does not matter whether the foreigner has a place of residence in Poland, whether they are subject to unlimited or limited tax obligation.

The payer calculates and collects advance payments for income tax, according to Art. 32 of the PIT Act (applies basic tax deductible costs or, in the case of submission of an appropriate declaration by the employee, increased costs, calculates the advance payment using a progressive tax scale of 18 or 32 percent, may reduce the advance payment by an amount constituting 1/12 of the amount reducing the tax, if they have PIT-2. After the end of the tax year, the payer who does not make an annual tax settlement on the PIT-4 form is obliged to prepare for the foreign employee information PIT-11 (Art. 39(1) of the PIT Act). In the situation where the obligation to collect advance payments ceased during the tax year, the payer, at the written request of the foreign employee, within 14 days from the submission of this request, is obliged to prepare and provide PIT-11 to the employee and the tax office, which is directed by the head of the tax office competent in matters of taxation of foreign persons (Art. 39(2) of the PIT Act).

Activity performed personally in the territory of Poland

Taxation of revenue from personally performed activities depends on the place of residence of the person obtaining this revenue and on whether the foreign person has provided the Polish entity with a certificate of residence.

Revenue from personally performed activities includes, among others, revenue: received by persons, regardless of the manner of their appointment, belonging to the composition of management boards, supervisory boards, commissions or other governing bodies of legal persons (Art. 13 point 7 of the PIT Act), for the provision of services on the basis of a mandate contract or a contract for specific work, obtained exclusively from natural persons conducting business activity, a legal person and its organizational unit, and an organizational unit without legal personality (Art. 13 point 8 of the PIT Act), obtained on the basis of contracts for enterprise management, managerial contracts or contracts of a similar nature (Art. 13 point 9 of the PIT Act). If a foreign person has a place of residence in the territory of Poland due to a center of vital interests located here or due to a period of stay above 183 days in a tax year), then their income from personally performed activities, as referred to in Art. 13 points 2, 4-9 of the PIT Act, is taxed on general principles.

In a situation where a foreigner does not have a place of residence in Poland, then revenue from personally performed activities, as referred to in Art. 13 points 2, 6-9 of the PIT Act, is taxed in the form of a flat rate of 20 percent of the revenue, according to Art. 29(1). The collection of flat-rate tax, on the other hand, is determined by Art. 41(4).

The above principle of taxation is applied taking into account agreements on the avoidance of double taxation, to which Poland is a party. However, the application of the tax rate resulting from the relevant agreement on the avoidance of double taxation or non-collection of tax in accordance with such an agreement is possible on the condition of documenting for tax purposes the taxpayer’s place of residence with a certificate of residence obtained from them.

If a foreign person has been recognized as a person having a place of residence in Poland and has provided the payer with a certificate of residence, then the payer does not determine Polish residence and collects flat-rate income tax on the principles specified in Art. 41(9) of the PIT Act. On the other hand, according to Art. 42(2) point 2, the payer is obliged to send by the end of February of the year following the tax year or at the written request of the taxpayer within 14 days from the submission of the request to the taxpayer and tax offices, which are directed by the heads of tax offices competent in matters of taxation of foreign persons, nominal information IFT-1/IFT1R.