Picking up the bill for foreigners employed in Poland
OK, here's a question for all you taxophiles out there. You are a foreigner in Poland on a temporary basis and your remuneration relating to your work in Poland is provided under a non-Polish contract, does that mean you don't have to pay Polish taxes on your foreign earnings until your stay exceeds 183 days in a calendar year? The answer is not that clear.
The 183-day rule stems from the double-tax treaties Poland has entered into with a number of countries. The treaties set out various safeguards to prevent and avoid the double taxation of income where potentially both contracting countries could have the right to tax that income. The wording in the treaties is strict, but does not provide carte blanche for the avoidance of tax altogether.
Before you can benefit from treaty protection against double taxation, you must be eligible, and to be eligible you have to be a resident of one of the contracting countries. It's also not as simple as just being a resident of these contracting countries. Although some may argue to the contrary, you must be a taxable citizen of the treaty countries to qualify. After all, the purpose of the treaty is to avoid double taxation if you are not a taxable resident you are not liable to tax and therefore need no treaty protection. So, while Americans are OK, citizens of the U.K. should beware. Generally if your U.K. tax code is NT (nil tax) or NR (non-resident) you can forget about the treaty. If you've been holding out on the Polish tax authorities you can either file a cumulative return after 183 days and keep your fingers crossed (I do not recommended this course of action) or you'd better pay up with interest for the seven months to date. If you do not take these actions, the tax authorities can charge you penalty interest and also clamp a hefty fine on you under the terms of the fiscal penal code.
Life is easier if you are a U.S. citizen and still have links with the United States (e.g. house, family, bank account, investments, etc.). That being the case, and because I regularly get my wrists slapped for running over my word count, the rest of this column will explore how U.S. citizens can take advantage of the 183-day rule.
The paragraph in the treaty that deals with the 183-day rule has specific conditions attached. For your U.S.-contractual remuneration to be nontaxable in Poland, you must satisfy three conditions. First, you must not exceed 183 days in Poland. Second, a permanent establishment that your U.S. employer has in Poland cannot pay your remuneration (this arrangement is rare and for the purposes of this article we will assume that this condition is always satisfied). Third, your remuneration must be paid by or on behalf of an employer that is not a resident of Poland. This final stipulation is the source of much discussion and controversy. Even if you work for a U.S. company that is not a resident of Poland and it pays your salary directly into your U.S. bank account, you may still have problems.
The burning question is who ultimately picks up the tab for the costs of your assignment. If those costs are recharged to the local Polish entity, you may have unwittingly broken the treaty, with the Polish resident company paying your remuneration.
There are those who argue that the remuneration may well be paid ultimately by the Polish company but that it is not truly paid by that company. However, whatever we might argue, we have to take into account the practice of the tax authorities in determining such issues. Generally tax authorities view the treaty as broken if the foreigner's employment is for the benefit of the Polish entity (whether in whole or in part) and the costs of the foreigner's assignment, to include the costs of his remuneration, are ultimately paid by the Polish entity by way of a recharge of costs from the seconding entity.
So not only do you need to keep track of your days spent in and out of Poland, but you (or whoever is responsible for your tax affairs) must also be aware of if and when your remuneration costs are recharged to Poland. Your Polish tax liability comes into effect on day 183 of your stay in Poland in a given calendar year or on the date of the first recharge of costs to the Polish entity, whichever comes first. When that date arrives, your first return is due on the 20th of the following month.
The first return is cumulative, covering your income for the entire period (in that calendar year) of your assignment to Poland. Thereafter don't forget that you are liable to file statutory monthly declarations and pay appropriate monthly tax advances on your foreign income relating to your work in Poland.
As they say in economics, there's no such thing as a free lunch. But by keeping on your toes, you can hopefully avoid paying twice for the same meal.
Anna Szymanska is a tax senior manager in the Warsaw office of Andersen.
